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Annual Report 2022
Celebrating life,
every day,
everywhere
Strategic report
Our brands
Connecting purpose to performance
Chairman’s statement
Our investment proposition
Chief Executive’s statement
Our market dynamics
Our business model
Our people
Our strategic priorities
Our performance
Sustainability performance
Our principal risks and risk management
Responding to climate-related risks
Group financial review
Business review
Category and brand review
Definitions and reconciliation of non-GAAP
measures to GAAP measures
Governance report
Board of Directors
Executive Committee
Corporate governance report
Audit Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
Financial Statements
Additional information
2
4
6
8
10
12
16
18
19
32
35
42
47
57
63
74
76
84
86
87
99
104
106
132
136
208
VISIT DIAGEO.COM FOR MORE INFORMATION
COVER: JOHNNIE WALKER BLUE LABEL
TANQUERAY
TEN GIN
Celebrating life,
every day,
everywhere
Strategic report
Our brands
Connecting purpose to performance
Chairman’s statement
Our investment proposition
Chief Executive’s statement
Our market dynamics
Our business model
Our people
Our strategic priorities
Our performance
Sustainability performance
Our principal risks and risk management
Responding to climate-related risks
Group financial review
Business review
Category and brand review
Definitions and reconciliation of non-GAAP
measures to GAAP measures
Governance report
Board of Directors
Executive Committee
Corporate governance report
Audit Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
Financial Statements
Additional information
2
4
6
8
10
12
16
18
19
32
35
42
47
57
63
74
76
84
86
87
99
104
106
132
136
208
VISIT DIAGEO.COM FOR MORE INFORMATION
COVER: JOHNNIE WALKER BLUE LABEL
TANQUERAY
TEN GIN
A global leader in beverage
alcohol with an outstanding collection
of brands across spirits and beer
Financial performance
Volume
(equivalent units)
EU263.0m
(2021: EU238.4m)
Net sales1
Operating profit
£15,452m
(2021: £12,733m)
£4,409m
(2021: £3,731m)
Reported movement
Organic movement2
10.3%
10.3%
Reported movement
Organic movement2
21.4%
21.4%
Reported movement
Organic movement2
18.2%
26.3%
Net cash from
operating activities
£3,935m
(2021: £3,654m)
Earnings per share
(eps)
140.2p
(2021: 113.8p)
Total recommended
dividend per share3
76.18p
(2021: 72.55p)
2022 increase of
2022 free cash flow2
£281m
£2,783m
Reported movement
eps before exceptional
items movement2
23.2%
5.0%
29.3%
Non-financial performance
Positive drinking
607,374∆
Inclusion and diversity
44%∆
(2021: 210,443)
(2021: 42%)
Number of people
educated on the dangers
of underage drinking through
a Diageo supported
education programme
Percentage of female
leaders globally
41%∆
(2021: 37%)
Percentage of ethnically diverse
leaders globally
Water efficiency4
4.13l/l∆
(2021: 4.29l/l)
Ratio of the amount of water
required to produce one litre
of packaged product
Carbon emissions4
(1,000 tonnes CO2e)
447∆
(2021: 472)
Absolute volume of Scope 1
and 2 carbon emissions, in
1,000 tonnes
1. Net sales are sales less excise duties
2. See Definitions and reconciliation of non-GAAP measures to GAAP measures on pages 76-83
3.
4.
Includes recommended final dividend of 46.82p
In accordance with Diageo’s environmental reporting methodologies and, where relevant, WRI/WBCSD GHG Protocol;
data for the baseline year 2020 and for the three years in the period ended 30 June 2019 has been restated where relevant
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting
methodologies, see our ESG Reporting Index
Unless otherwise stated in this document, percentage movements refer to organic movements. For a definition of organic movement
and reconciliation of all non-GAAP measures to GAAP measures, see pages 76-83. Share refers to value share. Percentage figures
presented are reflective of a year-on-year comparison, namely 2021-2022, unless otherwise specified.
Diageo Annual Report 2022
1
Our brands
With over 200 brands and sales
in more than 180 countries,
our portfolio offers something
for every taste and celebration
A global giant
with a local voice
Johnnie Walker is the world’s number one Scotch whisky brand.1
Following the celebration of the brand’s 200th year in 2020, this year
we’ve taken the first bold steps into a new chapter of Johnnie Walker’s
remarkable journey. We also welcomed over 235,000 visitors to
Johnnie Walker Princes Street,2 our newly opened visitor experience
in Edinburgh, and unveiled a new era of the brand’s iconic
‘Keep Walking’ story.
During the pandemic, people around the world experienced dramatic
shifts in their everyday lives. At Johnnie Walker, these changes,
combined with our consumer insight, created an opportunity to instil
the iconic ‘Keep Walking’ line with contemporary meaning, continuing
to build this global giant through new, local connections. Hot on the
heels of unveiling a bold new look for Johnnie Walker, we launched
our new ‘Keep Walking’ campaign in October 2021. For more than
20 years, Johnnie Walker has inspired people with these two simple
words, and this next chapter will continue to build cultural relevance
for the brand among the next generation of whisky drinkers.
Our campaign burst onto screens, into venues, social feeds
and advertising spaces in over 50 countries. Through partnerships
with local changemakers, including CL, the South Korean rapper;
Burna Boy, the Nigerian singer, songwriter and performance artist;
and DJ Alok, the Brazilian DJ and record producer, we reconnected
people with the socialising spaces they had missed for so long.
We broke away from more conventional communications, telling
the story of African creativity in an award-winning documentary,
‘The Ones Who Keep Walking’, which was made with the Forbes
30-under-30 director, Amarachi Nwosu. We shared inspiring quotes
on progress from famous personalities, such as Grace Jones,
Mark Twain and Mae West, across city skylines and cultural hot spots.
And our television and cinema advertisement ‘Anthem’ brought
Johnnie Walker’s charismatic spirit and the power of ‘Keep Walking’
to life with energy and optimism.
Johnnie Walker organic net sales grew 34% this year, surpassing
21 million nine-litre cases. And the ‘Keep Walking’ campaign’s success
speaks for itself. We’re proud that, judged against 13,000 other
advertisements, ‘Keep Walking’ won three top 10 places in Kantar’s
Creative Effectiveness Awards 2022.
IWSR, 2021
1.
2. Diageo internal data: 6 September 2021 to 30 June 2022
3.
IWSR, 2021
JOHNNIE WALKER BLACK LABEL
2
Diageo Annual Report 2022
2 out of 4
We own Johnnie Walker and Smirnoff,
two of the world’s four largest international
spirits brands by retail sales value3
Our brands
With over 200 brands and sales
in more than 180 countries,
our portfolio offers something
for every taste and celebration
Brand building expertise
We are driven to be the world’s best brand builder, leading the way in
premium drinks. Global or local, every one of our brands has a story.
Many bear witness to the changing world over centuries, while others
are products of our world today. All have a purpose and role to play in
creating enduring connections with people. While we honour the past,
we’re passionate about nurturing categories old and new, and about
building authentically crafted, culturally relevant brands.
From much-loved, established brands to the latest innovations, we move
at pace with the latest trends, creating products, tastes and experiences
for people to enjoy as part of celebrations big or small.
We are obsessed with building brands that will stand the test of time. This
requires focus, precision and investment, in what we call a perfect blend
of ‘creativity with precision’. It describes how we effectively combine
data, insights and innovation with the creative flair our consumers expect
from us, as the custodian of some of the most iconic brands in the world.
TANQUERAY LONDON DRY GIN AND TEA-INSPIRED COCKTAILS
It’s not teatime – it’s T-Time
Tanqueray prides itself on its unique mix of ingenuity and heritage.
And in March 2022, the brand found a fitting creative partner in
the Netflix Regency era-inspired series, Bridgerton. To mark the
premiere of the hit show’s second season, fans were cordially invited
to ‘Make it T-Time’. That is, teatime with a modern Tanqueray twist,
with singer and Tanqueray brand partner, Joe Jonas.
2 out of 4
We own Johnnie Walker and Smirnoff,
two of the world’s four largest international
spirits brands by retail sales value3
BAILEYS ORIGINAL LIQUEUR
Baileys: Halloween is for adults, too
Featuring three of the United Kingdom’s most popular drag queens
making a deliciously wicked Baileys S’mores martini cocktail, Baileys’
‘Witches’ campaign and television advertisement launched in over
10 countries in October 2021, celebrating Baileys as the ultimate adult
Halloween treat. Developed in partnership with Diageo’s LGBTQ+
employee group, the Rainbow Network, the campaign put inclusivity
at the heart of one of the biggest treating events of the year.
£6.1bn4
We are the global leader in super-premium
and above international spirits, with retail
sales value of over £6.1bn
4.
IWSR, 2021
TALISKER SINGLE MALT SCOTCH WHISKY
Raising ‘One for the Sea’
Made on the rugged shores of the Isle of Skye, Talisker shares its
spirit with the wildness and adventure of the sea. This is why the
brand has partnered with Parley for the Oceans to ‘Rewild Our Seas’,
committing to preserve and protect 100 million square metres of
marine ecosystems around the world by the end of 2023. Through
the ‘One for the Sea’ campaign, first launched in 2020, Talisker and
Parley have reached millions with their message, underpinned by
activations including a celebrity swim in Brighton and limited-edition
engraved bottles.
Diageo Annual Report 2022
3
A global giant
with a local voice
Johnnie Walker is the world’s number one Scotch whisky brand.1
Following the celebration of the brand’s 200th year in 2020, this year
we’ve taken the first bold steps into a new chapter of Johnnie Walker’s
remarkable journey. We also welcomed over 235,000 visitors to
Johnnie Walker Princes Street,2 our newly opened visitor experience
in Edinburgh, and unveiled a new era of the brand’s iconic
‘Keep Walking’ story.
During the pandemic, people around the world experienced dramatic
shifts in their everyday lives. At Johnnie Walker, these changes,
combined with our consumer insight, created an opportunity to instil
the iconic ‘Keep Walking’ line with contemporary meaning, continuing
to build this global giant through new, local connections. Hot on the
heels of unveiling a bold new look for Johnnie Walker, we launched
our new ‘Keep Walking’ campaign in October 2021. For more than
20 years, Johnnie Walker has inspired people with these two simple
words, and this next chapter will continue to build cultural relevance
for the brand among the next generation of whisky drinkers.
Our campaign burst onto screens, into venues, social feeds
and advertising spaces in over 50 countries. Through partnerships
with local changemakers, including CL, the South Korean rapper;
Burna Boy, the Nigerian singer, songwriter and performance artist;
and DJ Alok, the Brazilian DJ and record producer, we reconnected
people with the socialising spaces they had missed for so long.
We broke away from more conventional communications, telling
the story of African creativity in an award-winning documentary,
‘The Ones Who Keep Walking’, which was made with the Forbes
30-under-30 director, Amarachi Nwosu. We shared inspiring quotes
on progress from famous personalities, such as Grace Jones,
Mark Twain and Mae West, across city skylines and cultural hot spots.
And our television and cinema advertisement ‘Anthem’ brought
Johnnie Walker’s charismatic spirit and the power of ‘Keep Walking’
to life with energy and optimism.
Johnnie Walker organic net sales grew 34% this year, surpassing
21 million nine-litre cases. And the ‘Keep Walking’ campaign’s success
speaks for itself. We’re proud that, judged against 13,000 other
advertisements, ‘Keep Walking’ won three top 10 places in Kantar’s
Creative Effectiveness Awards 2022.
1.
IWSR, 2021
3.
IWSR, 2021
2. Diageo internal data: 6 September 2021 to 30 June 2022
JOHNNIE WALKER BLACK LABEL
2
Diageo Annual Report 2022
Connecting purpose to performance
Building a company
that can prosper over
the long term
Today, we are one of the world’s leading companies.
A business tuned to respond to the needs of all our
stakeholders and society at large. Arthur Guinness,
Charles Tanqueray, Elizabeth Cumming, John Walker,
and those who followed in their footsteps, were
incredible innovators and entrepreneurs. They
understood, as we do today, that our distilleries,
breweries and the hospitality industry we serve are
at the heart of local communities, and that our business
will only thrive if it helps these communities prosper too.
That’s why we believe that our responsibility and
influence extend beyond our direct operations.
We’re building and nurturing some of the world’s most
iconic brands, rooted in culture and local communities,
which is why we’re focussed on creating an inclusive,
sustainable business in its widest sense.
BAILEYS AMERICANO
Connecting purpose to performance
Building a company
that can prosper over
the long term
Today, we are one of the world’s leading companies.
A business tuned to respond to the needs of all our
stakeholders and society at large. Arthur Guinness,
Charles Tanqueray, Elizabeth Cumming, John Walker,
and those who followed in their footsteps, were
incredible innovators and entrepreneurs. They
understood, as we do today, that our distilleries,
breweries and the hospitality industry we serve are
at the heart of local communities, and that our business
will only thrive if it helps these communities prosper too.
That’s why we believe that our responsibility and
influence extend beyond our direct operations.
We’re building and nurturing some of the world’s most
iconic brands, rooted in culture and local communities,
which is why we’re focussed on creating an inclusive,
sustainable business in its widest sense.
At the heart of everything we do
Our purpose and culture
Celebrating life, every day, everywhere.
We have an accessible purpose that provides a holistic platform for
us to be the best we can be at work, at home and in our communities.
Our purpose is about celebrating life in its broadest sense and it goes
hand-in-hand with performance: never one without the other.
Our culture is rooted in a deep sense of our purpose, the personal
connections we have to our brands, our relationships with each
other and our passion to win in the marketplace.
At the core of our approach is a commitment to positive drinking
through promoting moderation and addressing the harmful use
of alcohol. That’s good for consumers and good for business.
Our ‘Society 2030: Spirit of Progress’ ESG action plan sets ambitious
goals that support our commitment to shaping a more sustainable
and inclusive business and society. We take great care in building
sustainable supply chains; in protecting the environment and the
natural resources we all rely on; and in our commitment to skills
development, empowerment, inclusion and diversity.
Our ambition
To be one of the best performing, most trusted and respected
consumer products companies in the world.
To be best performing, we need to deliver efficient growth and
value creation for our shareholders. This means delivering quality
sustainable growth in net sales; steady margin expansion; and reliable
cash flows year after year. We don’t believe that we can become
‘best performing’ without also being ‘most trusted and respected’.
This means we must do business the right way, from grain to glass,
and ensure our people are highly engaged and continuously learning.
Shaping the way we work
Our values
Our values underpin our business and guide how we work.
We are passionate about our customers and consumers and want
to be the best. We give each other the freedom to succeed and
value each other. Pride is a source of energy for our company and
we work hard so we can be proud of what we do.
A roadmap for achieving our ambition
Our strategic priorities
Our six inter-related and mutually reinforcing strategic priorities
drive our company forward.
They help us deliver the strategic outcomes against which we
measure our performance.
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EG
Efficient growth
CVC
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CT
Credibility and trust
EP
Engaged people
READ MORE ON PAGE 19
Aligned to stakeholders’ interests
Our stakeholders
Measuring our progress
Our key performance indicators
Our people
Communities
Consumers
Investors
Customers
Suppliers
Governments
and regulators
EG
CVC
EG
CVC
EG
CVC
EG
CVC
CVC
CVC
CVC
CT
EP
CVC
CT
EP
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EP
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CVC
CT
EP
CVC
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EP
CT
EP
Organic net sales growth
Organic operating profit growth
Earnings per share before exceptional items
Free cash flow
Return on average invested capital
Total shareholder return
Percentage of ethnically diverse leaders globally
Percentage of female leaders globally
Reach and impact of positive drinking programmes
Health and safety
Water efficiency
Carbon emissions
Employee engagement
BAILEYS AMERICANO
READ MORE ON PAGES 92-94
READ MORE ON PAGES 32-38
Diageo Annual Report 2022
5
Despite these challenges, I am pleased that Diageo has, once again,
delivered strong performance. Employee engagement remains high
and we continue to invest, for long-term growth, in our brands and
in our portfolio. On behalf of the Board, I would like to thank our
employees for their hard work and commitment to the company.
Their focus and agility have enabled Diageo to navigate the volatility
and finish the year a stronger business.
Global environment
We have again seen considerable instability in the global environment
over the past year. Covid-19 continues to have unpredictable impacts
in some countries, even as the easing of restrictions across most of the
world has seen a welcome recovery for the on-trade in many regions.
In June, we took the difficult decision to wind down our business in
Russia – after having stopped shipments and sales in March. And our
focus will remain on supporting our employees in the region, as we
have done since this terrible conflict began.
Our supply chain has also been impacted by inflationary pressures.
While high energy prices affect our suppliers and operations, they
can also impact consumers’ disposable income. We have been
agile in our response to this volatility, leveraging our supply chain
capabilities and longstanding experience in managing the
complexities of international trade.
Long-term view
In the face of these challenges, we continue to take a long-term view of
our business, our portfolio and our brands. At our Capital Markets Day
in November 2021, we set out our ambition to increase our value share
of the total beverage alcohol (TBA) market by 50%, from 4% to 6%,
by 2030. This ambition reflects our view of TBA as a long-cycle market
with attractive fundamentals, including demand from a growing, global
middle class. Hundreds of millions more consumers will be able to
access premium brands, as they increasingly choose to trade up and
‘drink better, not more.’
Our sustained investment in brand building and the active
management of our portfolio continue to build equity and position
us well to capture trends and occasions. We are responding to our
consumers’ evolving tastes and demands with innovation, creativity
and precision in our marketing. And we believe that investing in our
brands, even in periods of volatility, is the right way to grow their
long-term equity and our business. Our teams are building brands
that are relevant today and which, we believe, consumers will choose
for many years to come. You can read more about some of our
brand building work over the last year on pages 2-3.
Building an entrepreneurial culture
I believe Diageo’s culture is a key source of competitive advantage.
Our heritage is rooted in the vision of extraordinary entrepreneurs,
such as John and Alexander Walker, Elizabeth Cumming, Don Julio
González, Charles Tanqueray and Arthur Guinness, creating brands
whose relationships with consumers have endured for centuries.
Continuing that tradition, we are striving to become ever more
entrepreneurial, as the proud custodians of exceptional brands from
iconic names to innovative newcomers, such as Bulleit Bourbon,
Seedlip or Casamigos.
This entrepreneurial spirit is embedded across Diageo through an agile,
purpose-driven culture, which demonstrated its value in our response
to the challenges of the Covid-19 pandemic. We have grown market
share while supporting the industry, our customers and each other.
Chairman’s statement
A strong platform
for future growth
This has been a challenging year for all
consumer goods categories, with continuing
reverberations from the Covid-19 pandemic,
significant economic uncertainty and the
terrible conflict in Ukraine. Our thoughts are
with all those, including our colleagues,
affected by this conflict.
Recommended final dividend
per share
46.82p
2021: 44.59p
Total shareholder
return
4%
2021: 32%
Total dividend per share1
5% to 76.18p
2021: 72.55p
1.
Includes recommended final dividend of 46.82p
6
Diageo Annual Report 2022
Chairman’s statement
A strong platform
for future growth
This has been a challenging year for all
consumer goods categories, with continuing
reverberations from the Covid-19 pandemic,
significant economic uncertainty and the
terrible conflict in Ukraine. Our thoughts are
with all those, including our colleagues,
affected by this conflict.
Recommended final dividend
Total shareholder
per share
46.82p
2021: 44.59p
return
4%
2021: 32%
Total dividend per share1
5% to 76.18p
2021: 72.55p
1.
Includes recommended final dividend of 46.82p
Despite these challenges, I am pleased that Diageo has, once again,
delivered strong performance. Employee engagement remains high
and we continue to invest, for long-term growth, in our brands and
in our portfolio. On behalf of the Board, I would like to thank our
employees for their hard work and commitment to the company.
Their focus and agility have enabled Diageo to navigate the volatility
and finish the year a stronger business.
Global environment
We have again seen considerable instability in the global environment
over the past year. Covid-19 continues to have unpredictable impacts
in some countries, even as the easing of restrictions across most of the
world has seen a welcome recovery for the on-trade in many regions.
In June, we took the difficult decision to wind down our business in
Russia – after having stopped shipments and sales in March. And our
focus will remain on supporting our employees in the region, as we
have done since this terrible conflict began.
Our supply chain has also been impacted by inflationary pressures.
While high energy prices affect our suppliers and operations, they
can also impact consumers’ disposable income. We have been
agile in our response to this volatility, leveraging our supply chain
capabilities and longstanding experience in managing the
complexities of international trade.
Long-term view
In the face of these challenges, we continue to take a long-term view of
our business, our portfolio and our brands. At our Capital Markets Day
in November 2021, we set out our ambition to increase our value share
of the total beverage alcohol (TBA) market by 50%, from 4% to 6%,
by 2030. This ambition reflects our view of TBA as a long-cycle market
with attractive fundamentals, including demand from a growing, global
middle class. Hundreds of millions more consumers will be able to
access premium brands, as they increasingly choose to trade up and
‘drink better, not more.’
Our sustained investment in brand building and the active
management of our portfolio continue to build equity and position
us well to capture trends and occasions. We are responding to our
consumers’ evolving tastes and demands with innovation, creativity
and precision in our marketing. And we believe that investing in our
brands, even in periods of volatility, is the right way to grow their
long-term equity and our business. Our teams are building brands
that are relevant today and which, we believe, consumers will choose
for many years to come. You can read more about some of our
brand building work over the last year on pages 2-3.
Building an entrepreneurial culture
I believe Diageo’s culture is a key source of competitive advantage.
Our heritage is rooted in the vision of extraordinary entrepreneurs,
such as John and Alexander Walker, Elizabeth Cumming, Don Julio
González, Charles Tanqueray and Arthur Guinness, creating brands
whose relationships with consumers have endured for centuries.
Continuing that tradition, we are striving to become ever more
entrepreneurial, as the proud custodians of exceptional brands from
iconic names to innovative newcomers, such as Bulleit Bourbon,
Seedlip or Casamigos.
This entrepreneurial spirit is embedded across Diageo through an agile,
purpose-driven culture, which demonstrated its value in our response
to the challenges of the Covid-19 pandemic. We have grown market
share while supporting the industry, our customers and each other.
Delivering ‘Society 2030: Spirit of Progress’
I was delighted to see the launch of our ‘Society 2030: Spirit of
Progress’ ESG targets in fiscal 21, and the decision to link 20% of
long-term incentive plan (LTIP) grants, for all our senior leaders, to
performance against several of our ESG measures. I am encouraged
by the energy and progress I see in our work to deliver our 2030 goals.
We now have four carbon-neutral distilleries in Scotland and North
America, with another four sites, globally, committed to achieving
carbon neutrality. And we are proud that the Scotland-based Alliance
for Water Stewardship (AWS), which sets a global benchmark for water
sustainability, awarded the International Water Stewardship Standard
(AWS Standard) certification to 12 of our distilleries this year, including
our largest distillery, Cameronbridge, in Scotland.
We have incorporated the Task Force on Climate-related Financial
Disclosures framework into our reporting. And this year, we have
continued to extend the scope and sophistication of our climate risk
assessments and the scenario analysis of climate change impacts.
While our analysis indicates the financial impact will not be material
to 2030, we know that managing the increasing climate risks we face,
such as water stress, remains a priority. We expect to invest around
£1 billion in environmental sustainability to reduce our impact and
adapt to a changing climate, including decarbonisation of direct
operations through biomass, bioenergy and electrification.
Read more on pages 30-31, 35-38 and 47-56.
Engaging stakeholders
As designated Non-Executive Director for workforce engagement,
I have very much enjoyed meeting hundreds of employees across
Diageo during the year. My Board colleagues and I have been
delighted to see some of them face-to-face again, and I am
encouraged by their pride in the company and their ambition for the
future. I am very pleased by the results of the annual Your Voice survey,
with engagement at 82%, and 90% of respondents2 proud to work for
Diageo – 10 percentage points higher than our external benchmark.3
Read our workforce engagement statement on page 96.
Creating value
I am pleased with the momentum and the performance delivered in
fiscal 22. We have built solid foundations for future progress across the
four areas of performance we measure: efficient growth, consistent
value creation, credibility and trust, and engaged people. Return on
invested capital was up 331 basis points to 16.8%, driven mainly by
organic operating profit growth. Total shareholder return (TSR) was
4% this year. And our 10-year annualised TSR is 11%.
We continue to target dividend cover (the ratio of basic earnings per
share before exceptional items to dividend per share) of between
1.8 and 2.2 times. The recommended final dividend is 46.82 pence
per share, an increase of 5%. This brings the recommended full-year
dividend to 76.18 pence per share and dividend cover to 2.0 times.
Subject to shareholder approval, the final dividend will be paid to
ordinary shareholders on 20 October 2022. Payment will be made
to ADR holders on 25 October 2022.
On 21 February 2022, we announced the commencement of the third
phase of our fiscal 20 to fiscal 23 return of capital (ROC) programme
of up to £4.5 billion. Under the first two phases of the ROC programme,
which were completed on 31 January 2020 and 11 February 2022
respectively, Diageo repurchased shares with an aggregate value of
£2.25 billion. Under the third phase, due to complete no later than
5 October 2022, Diageo is seeking to return up to £1.7 billion to
shareholders via share buybacks. As at 30 June 2022, £1.4 billion of
phase three had been completed and the remaining £0.9 billion of
the ROC programme is expected to be completed by 30 June 2023.
During fiscal 22, the company purchased 61 million ordinary shares
returning £2.3 billion to shareholders.
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Board changes
We are delighted to have appointed Karen Blackett, OBE, as a
non-executive Director from 1 June 2022. Karen joined the Audit,
Nomination and Remuneration Committees on appointment, and
brings 25 years’ experience of the media, marketing and creative
industries. She is also a strong advocate for inclusion, diversity and
creating opportunities for all.
Following Siobhán Moriarty’s retirement on 30 September 2021, after
an outstanding contribution to the company over 20 years, Tom
Shropshire, formerly a Partner & Global US Practice Head at Linklaters
LLP, succeeded Siobhán as General Counsel and Company Secretary.
Looking ahead
We recognise that regulatory change to tackle the threat of climate
change and increased scrutiny of our own social and economic
contribution will likely accelerate in years to come. And there is
potential for increased volatility in our operating environment,
including ongoing impacts from Covid-19, the conflict in Ukraine,
inflationary pressures and disruption in our supply chains, as well
as the potential for broader economic malaise, which could impact
consumer demand in fiscal 23. Diageo is, however, well diversified, by
category, price point and geography; our people are engaged and
proud of Diageo; and we continue to invest for the future to sustain
the momentum in our brands and deliver a positive impact on society.
We have consistently shown resilience in the face of volatility in recent
years and proven our ability to emerge stronger in these circumstances.
I believe that our strengths in brand building, our supply chain
operations and our culture, combined with the attractive fundamentals
of the TBA market, give us a strong platform to realise our ambitions
for the future growth of Diageo, even in the face of continued volatility.
Your Board and executive leadership team will remain focussed on
delivering long-term value creation for all our stakeholders.
Javier Ferrán
Chairman
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 MORE ABOUT HOW
STAKEHOLDERS WERE
TAKEN INTO ACCOUNT
IN DECISION-MAKING
ON PAGES 92-94
2. 88% of our global employees completed the survey (fiscal 21: 85%)
3. Benchmark consists of over 30 fast moving consumer goods and manufacturing companies with similar global reach to Diageo
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Diageo Annual Report 2022
Diageo Annual Report 2022
7
Our investment proposition
Positioned to win
Diageo is the number one player in
international spirits, which is growing,
premiumising and gaining share of
total beverage alcohol.1
And our iconic global brand Guinness,
at the heart of our beer portfolio,
is well positioned for the key growth
trends within the category as a
premium, flavourful beer.2
THE GUINNESS MICRODRAUGHT
DISPENSER
8
Diageo Annual Report 2022
Our investment proposition
Positioned to win
Diageo is the number one player in
international spirits, which is growing,
premiumising and gaining share of
total beverage alcohol.1
And our iconic global brand Guinness,
at the heart of our beer portfolio,
is well positioned for the key growth
trends within the category as a
premium, flavourful beer.2
THE GUINNESS MICRODRAUGHT
DISPENSER
8
Diageo Annual Report 2022
A large, growing and attractive industry
Total beverage alcohol (TBA) has a strong record of value growth
over the last 10 years, with international spirits, where Diageo is the
number one player, growing faster than TBA.3 In both developed and
emerging markets, growth is underpinned by attractive consumer
fundamentals, including population growth, increased spirits penetration
and premiumisation.
An additional 600 million consumers are expected to come of age by
2032, and the continued growth of the ‘middle class and above’ income
bracket should enable 600 million more consumers to access our brands.4
Spirits penetration remains low and even in our largest market, the United
States, only around 50% of households purchase spirits every year.5
Premiumisation is a long-established trend, with the highest price tiers
growing at more than double the international spirits category growth
rate between 2016 and 2021.3 Diageo has the largest premium-plus
business within international spirits3, and this segment now comprises over
half of our reported net sales value. Our super-premium-plus portfolio,
which focusses on the global luxury opportunity, grew 31% this year.
While the current economic environment may create near-term volatility,
we remain confident in continued premiumisation over the long term.
In beer, we have a differentiated and highly profitable business model,
with exposure to attractive growth opportunities in both emerging
and developed markets. Our iconic global brand, Guinness, is well-
positioned for the key growth trends within the beer category
as a premium, flavourful and differentiated beer.
With only 4.6% of global TBA share,3 we believe we have significant
headroom for sustainable, long-term growth, and our ambition is to
outperform the market and increase our TBA value share to 6% by 2030.
READ MORE ON PAGES 12-15
With an advantaged portfolio and
geographic footprint
We own over 200 brands, with sales in more than 180 countries,
including a market-leading position in international spirits in the
United States3 and fast-growing businesses in India and China. The
breadth and depth of our portfolio across categories and price points,
and our well-balanced position between developed and emerging
markets, gives exposure to the largest consumer growth opportunities
while providing some resilience to global volatility.
Our active and disciplined approach to portfolio management has
shaped it towards higher-growth categories, including tequila,
international whisky, scotch and gin. This has included acquisitions of
premium-plus brands, such as Don Julio in 2015, Casamigos in 2017,
Aviation American Gin in 2020 and 21Seeds flavoured tequila in 2022.
And through our majority stake in Sichuan Swellfun Co., Ltd. (ShuiJingFang),
we are the only international spirits player to compete in the large,
growing and rapidly premiumising baijiu market. We’ve also made
strategic disposals, including a portfolio of 19 brands in 2018; the Meta
Abo Brewery in Ethiopia; and Picon in 2022. We also agreed to dispose
of Windsor in Korea in 2022; and United Spirits Limited announced an
agreement to sell and franchise a portfolio of brands in India.
READ MORE ON PAGES 57-75
World-class brand building and effective
route to consumer
Our exceptional capabilities in brand building and innovation drive
sustainable long-term growth of our brands. We combine our deep
understanding of consumers with marketing creativity, and we execute
with precision. This is underpinned by smart investment in marketing
effectiveness tools, such as Catalyst, Demand Radar and Sensor.
Our ability to have the right product in the right place at the right time
and at the right price, enables us to win with consumers. We’ve invested
in transformational digital and data capabilities, including proprietary
technology tools, to consistently deliver a customer-first mindset.
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Our suite of ‘Every Day Great Execution’ (EDGE) technology tools,
including EDGE365 and Diageo One, gives us deeper insights that
enable us to improve our commercial execution and customer service.
We’re also building our e-commerce and direct-to-consumer
capabilities, which further expand our sales reach to consumers.
The strength of our on-trade customer relationships, enhanced through
programmes such as Diageo Reserve World Class and Diageo Bar
Academy, inspire and educate bartenders in the craft of mixology
while supporting advocacy and quality serves of our brands.
Our route to consumer is a key competitive advantage, underpinned
by a supply chain that is resilient, agile, efficient and sustainable.
We manage diverse supply chains, from gins and beers to aged
whiskies and tequilas, and we have a proven ability to respond at
pace in complex and volatile environments.
READ MORE ON PAGES 22-23
Financial strength and a culture of efficiency
We expect to deliver organic net sales growth consistently in the range
of 5% to 7%, and organic operating profit growth sustainably in the
range of 6% to 9%, for fiscal 23 to fiscal 25. Sustainable top-line
growth and productivity savings enable smart re-investment to drive
long-term growth. These investments include expanding our production
capacity, such as new whiskey distilleries in North America and China;
adding new consumer experiences, including the Johnnie Walker
Princes Street visitor experience in Edinburgh; and strengthening our
digital capabilities.
We have a consistent and disciplined approach to capital allocation,
prioritising investment in the business to deliver sustainable and efficient
organic growth, and pursuing acquisitions that strengthen our exposure
to attractive categories. Excess cash is returned to shareholders.
We have a track record of growing shareholder value, and have
increased our full-year dividend per share every year since 2001,
including during Covid-19. Over the last 20 years, our absolute
dividend per share has increased 220% and, over the last five years,
we have returned £7.9 billion to shareholders through share buybacks.
READ MORE ON PAGES 22-23
Highly engaged people and agile culture
Our people and culture are key enablers in delivering our Performance
Ambition. Our culture connects our people. And their shared purpose
and passion for our brands drives ownership of performance. This year,
90% of respondents to our Your Voice survey told us they are proud to
work for Diageo.6
READ MORE ON PAGE 18
And a commitment to shaping a more
sustainable future
Doing business in the right way is fundamental to our Performance
Ambition. We want to create a positive impact on our company,
within our communities and for our society. And we are delivering this
through our ‘Society 2030: Spirit of Progress’ ESG action plan. Our
priorities in sustainability, inclusion and diversity, and promoting positive
drinking reflect the most material issues affecting our company, our
people, our brands, our suppliers and our communities. We strongly
believe that our ESG ambitions are a source of commercial advantage
and are fundamental to attracting and retaining the best talent,
building deep consumer loyalty, increasing innovation, and driving
efficiency and resilience across our operations.
READ MORE ON PAGES 19, 26-34 AND 41
1.
IWSR, 2021 – retail sales value (RSV)
CAGR 2011-2021
2. Global Data, 2021
3.
IWSR, 2021
4. World Bank, 2022
5. Numerator
6. 88% of our global employees
completed the survey (fiscal 21: 88%)
Diageo Annual Report 2022
9
Chief Executive’s statement
Another year of
strong performance
I am very pleased with our fiscal 22 results. In the face
of unprecedented political and economic volatility,
my 27,987 colleagues have worked tirelessly to
deliver another year of strong performance.
Reported volume movement
Volume movement
10.3%
2021: 9.9%
Reported net sales
movement
21.4%
2021: 8.3%
Reported operating
profit movement
18.2%
2021: 74.6%
10.3%
2021: 11.2%
Net sales movement
21.4%
2021: 16.0%
Operating profit
movement
26.3%
2021: 17.7%
10
Diageo Annual Report 2022
The operating environment was even more challenging in the second
half with stronger headwinds from inflation, supply chain disruptions
and geopolitical events. Diageo has responded to these challenges
with agility and resilience, reflected in the strength of this year’s results.
Although there is more to do, I am proud of the progress we have
made against our ‘Society 2030: Spirit of Progress’ ESG action plan,
and the support we are giving to our colleagues, customers and the
communities where we operate. Read more on pages 26-31 and 35-38.
As Javier notes, we are in the process of winding down our business in
Russia. We are providing support to our employees across the region
and doing what we can to assist the humanitarian effort, including
pledging €2 million to aid organisations. Our thoughts are with
everyone affected by the conflict in Ukraine, including all those
concerned for family, friends and colleagues.
Performance
For the full year, reported net sales increased 21.4%, primarily driven by
strong organic growth, also up 21.4%, with strong double-digit growth
across all regions. Growth reflects continued recovery in the on-trade,
resilient consumer demand in the off-trade and market share gains.
This performance was also underpinned by favourable industry
trends of spirits taking share of total beverage alcohol (TBA) and
premiumisation.1 Our premium-plus brands contributed 57% of
reported net sales and drove 71% of organic net sales growth.
Organic volume growth was 10.3% and price/mix was up 11.1%,
reflecting positive mix from strong performance in super-premium-plus
brands, and mid-single digit price growth driven by price increases
across all regions. Overall, we grew or held off-trade market share
in over 85% of total net sales value in measured markets.2
Reported operating profit, up 18.2%, was primarily driven by a 26.3%
increase in organic operating profit – with growth across all regions.
Reported operating margin decreased 77 basis points (bps), driven
by organic margin growth which was more than offset by exceptional
operating items of £388 million. Despite increased cost inflation and
24.7% growth in organic marketing investment, we delivered a 121bps
improvement in organic operating margin. This reflected a strong
recovery in organic gross margin and leverage on operating costs.
Organic gross margin was driven, primarily, by positive mix from
premiumisation and the recovery of the on-trade channel. It also
benefitted from improved fixed cost absorption from volume growth.
Price increases and supply productivity savings more than offset the
absolute impact of cost inflation.
Reported and organic net sales were up across all key categories,
with particularly strong growth in scotch, tequila and beer. Our global
giants grew organic net sales by 22%, with all brands in growth and
Johnnie Walker up 34%. Our Reserve brands grew 31%, largely driven
by Casamigos, up 90%, Don Julio, Johnnie Walker Reserve variants,
Chinese white spirits and scotch malts.
Our local stars grew 14%, largely driven by double-digit growth in
Buchanan’s, and growth in Chinese white spirits, Crown Royal and
Old Parr. Windsor and Bundaberg organic net sales were down 9%
and 4%, respectively.
Basic earnings per share increased 23.2%, primarily driven by organic
operating profit growth, partially offset by higher tax and exceptional
items. Basic earnings per share before exceptional items increased
29.3%. We delivered free cash flow of £2.8 billion this year, a decline
of £0.3 billion, due to lapping an exceptionally strong working capital
benefit in fiscal 21.
1.
2.
ISWR, 2021
Internal estimates incorporating Nielsen, Association of Canadian Distillers,
Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia,
State Monopolies, TRAC, Ipsos and other third-party providers
Chief Executive’s statement
Another year of
strong performance
I am very pleased with our fiscal 22 results. In the face
of unprecedented political and economic volatility,
my 27,987 colleagues have worked tirelessly to
deliver another year of strong performance.
Reported volume movement
Volume movement
10.3%
2021: 9.9%
Reported net sales
movement
21.4%
2021: 8.3%
Reported operating
profit movement
18.2%
2021: 74.6%
10.3%
2021: 11.2%
Net sales movement
21.4%
2021: 16.0%
Operating profit
movement
26.3%
2021: 17.7%
The operating environment was even more challenging in the second
half with stronger headwinds from inflation, supply chain disruptions
and geopolitical events. Diageo has responded to these challenges
with agility and resilience, reflected in the strength of this year’s results.
Although there is more to do, I am proud of the progress we have
made against our ‘Society 2030: Spirit of Progress’ ESG action plan,
and the support we are giving to our colleagues, customers and the
communities where we operate. Read more on pages 26-31 and 35-38.
As Javier notes, we are in the process of winding down our business in
Russia. We are providing support to our employees across the region
and doing what we can to assist the humanitarian effort, including
pledging €2 million to aid organisations. Our thoughts are with
everyone affected by the conflict in Ukraine, including all those
concerned for family, friends and colleagues.
Performance
For the full year, reported net sales increased 21.4%, primarily driven by
strong organic growth, also up 21.4%, with strong double-digit growth
across all regions. Growth reflects continued recovery in the on-trade,
resilient consumer demand in the off-trade and market share gains.
This performance was also underpinned by favourable industry
trends of spirits taking share of total beverage alcohol (TBA) and
premiumisation.1 Our premium-plus brands contributed 57% of
reported net sales and drove 71% of organic net sales growth.
Organic volume growth was 10.3% and price/mix was up 11.1%,
reflecting positive mix from strong performance in super-premium-plus
brands, and mid-single digit price growth driven by price increases
across all regions. Overall, we grew or held off-trade market share
in over 85% of total net sales value in measured markets.2
Reported operating profit, up 18.2%, was primarily driven by a 26.3%
increase in organic operating profit – with growth across all regions.
Reported operating margin decreased 77 basis points (bps), driven
by organic margin growth which was more than offset by exceptional
operating items of £388 million. Despite increased cost inflation and
24.7% growth in organic marketing investment, we delivered a 121bps
improvement in organic operating margin. This reflected a strong
recovery in organic gross margin and leverage on operating costs.
Organic gross margin was driven, primarily, by positive mix from
premiumisation and the recovery of the on-trade channel. It also
benefitted from improved fixed cost absorption from volume growth.
Price increases and supply productivity savings more than offset the
absolute impact of cost inflation.
Reported and organic net sales were up across all key categories,
with particularly strong growth in scotch, tequila and beer. Our global
giants grew organic net sales by 22%, with all brands in growth and
Johnnie Walker up 34%. Our Reserve brands grew 31%, largely driven
by Casamigos, up 90%, Don Julio, Johnnie Walker Reserve variants,
Chinese white spirits and scotch malts.
Our local stars grew 14%, largely driven by double-digit growth in
Buchanan’s, and growth in Chinese white spirits, Crown Royal and
Old Parr. Windsor and Bundaberg organic net sales were down 9%
and 4%, respectively.
Basic earnings per share increased 23.2%, primarily driven by organic
operating profit growth, partially offset by higher tax and exceptional
items. Basic earnings per share before exceptional items increased
29.3%. We delivered free cash flow of £2.8 billion this year, a decline
of £0.3 billion, due to lapping an exceptionally strong working capital
benefit in fiscal 21.
Reported net sales by category
Scotch
Vodka
US whiskey
Canadian whisky
Rum
IMFL whisky3
Liqueurs
Gin
Tequila
Beer
Ready to drink
Other
Doing business the right way
I firmly believe that Diageo’s commitment to sustainability, inclusivity,
diversity and promoting positive drinking through our ‘Society 2030: Spirit
of Progress’ ESG action plan is a source of commercial advantage, and
ensures we attract and retain the most talented employees.
At Diageo, we want people who choose to drink, to ‘drink better, not
more’. There is no alcoholic drink of moderation, only a practice of
moderation, and we are determined to provide consumers with the
information they need to make informed choices. The prevalence of
harmful drinking – including heavy episodic, or binge drinking, and
underage drinking – has been falling in many regions over the last
decade. There is, however, much more to do and all of us in the
industry have an important role to play in reducing the harmful
use of alcohol, in partnership with governments and civil society.
Wrong Side of the Road, a hard-hitting new programme to support
changes in attitudes to drink driving globally, has reached over
500,000 people in 24 countries since it was launched in May 2021.
And SMASHED, our award-winning programme focussed on tackling
underage drinking, is now running in 26 countries and has educated
607,374∆ people in fiscal 22. DRINKiQ, our responsible drinking tool,
is now available in 73 countries and 23 languages, delivering early
achievement of one of our 2030 goals.4 We also made significant
progress against our target to reach one billion people with
dedicated responsible drinking messages by 2030. Read more
on pages 26-27 and 35.
I’m also very proud that we continue to make progress in building a more
inclusive and diverse company: 64% of Diageo’s Board are female and
the percentage of female leaders globally is now 44%.∆ And 45% of our
Board and 41%∆ of leaders globally, including our Executive Committee,
are ethnically diverse. Read more on pages 28-29, 35-36 and 105.
As Javier explains, we have made progress this year in the delivery of
our grain-to-glass sustainability goals, with a focus on preserving water
for life, accelerating to a low-carbon world and becoming sustainable
by design. Read more on pages 30-31 and 36-38.
Delivering growth
We have set new medium-term guidance for consistent and
sustainable growth for fiscal 23 to fiscal 25, and an ambition to deliver
a 50% increase in our value share of the TBA market, from 4% to 6%,
by 2030. This ambition rests on our view of the attractive fundamentals
of TBA combined with our determination to become the best brand
builders in the world. I am pleased with the progress we have made
towards this ambition, having increased our TBA share to 4.6% in
2021.5 This share gain was more than any of our peers and two times
more than our largest competitor.6
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I believe Diageo’s performance demonstrates the consistent delivery
of our strategy: focussing on agility, efficiency, commercial execution,
sustained investment, and above all, understanding and responding to
our consumers through culturally relevant marketing, innovation and
active portfolio management. During the year, we continued to invest for
the future across production capacity, digital capabilities and consumer
experiences, opening Johnnie Walker Princes Street in Edinburgh and
announcing investments in Guinness experiences in Chicago and London.
We also continued to shape our portfolio towards attractive categories
by acquiring 21Seeds and Mezcal Unión. We also acquired Vivanda,
owner of the flavour matching technology behind ‘What’s Your Whisky’
and the ‘Journey of Flavour’ at Johnnie Walker Princes Street in
Edinburgh. This acquisition supports our ambition to provide customised
and interactive experiences for consumers across all channels and is
part of the acceleration of the digital transformation journey we
embarked upon in 2017. We sold Picon and the Meta Abo Brewery,
in Ethiopia, and announced an agreement to dispose of the Windsor
business. And in May 2022, United Spirits Limited announced an
agreement to sell and franchise a portfolio of Indian Popular brands.
We are proud that, in June 2022, we captured eight of the top ten
positions in the Drinks International ‘Millionaires’ Club’ – an annual list
featuring the fastest growing spirits brands around the world, which
achieve annual sales volumes exceeding one million nine-litre cases.
Consistent investment in our brands has been a key enabler of quality
market share gains and we will continue to invest in their growth.
Outlook
Looking ahead to fiscal 23, we expect the operating environment to be
challenging, with ongoing volatility related to Covid-19, significant cost
inflation, a potential weakening of consumer spending power and
global geopolitical and macroeconomic uncertainty. Notwithstanding
these factors, I am confident in the resilience of our business and our
ability to navigate headwinds.
I believe we have an advantaged portfolio with extraordinary brands
across geographies, categories and price points. And we continue
to actively shape our portfolio to fast-growing categories through
innovation and acquisitions. We are staying close to our consumers,
and our digital tools and data capabilities are enabling us to quickly
understand trends and execute with precision. Continued smart
re-investment is being fuelled by our culture of everyday efficiency.
And our expertise in revenue growth management is enabling strategic
pricing actions. In addition to our everyday efficiency savings, as we
continue to build a more agile and sustainable business, we have
initiated a new supply chain agility programme, spanning a five-year
period from fiscal 23. We expect this programme to strengthen our
supply chain, improve its resilience and agility, drive efficiencies, deliver
additional productivity savings and make our supply operations more
sustainable. The programme is expected to have a five-year payback
period, with the majority of savings delivered in fiscal 25 and beyond.
We are executing our strategic priorities, including our ambitious 10-year
ESG action plan. And I am confident that we are well-positioned to deliver
our medium-term guidance for fiscal 23 to fiscal 25 of organic net sales
growth consistently in the range of 5% to 7% and organic operating
profit growth sustainably in the range of 6% to 9%.
Ivan Menezes
Chief Executive
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Diageo Annual Report 2022
Diageo Annual Report 2022
11
ISWR, 2021
1.
2.
Internal estimates incorporating Nielsen, Association of Canadian Distillers,
Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia,
State Monopolies, TRAC, Ipsos and other third-party providers
Indian-Made Foreign Liquor (IMFL) whisky
3.
4. Our promote positive drinking goal is to ‘Champion health literacy and tackle harm through
DRINKiQ in every market where we live, work, source and sell’ (where it is legally
permissible). Read more on page 35.
IWSR, 2021
5. Diageo retail sales value % share of TBA for calendar year 2021, IWSR, 2021
6.
∆ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope.
For further detail and the reporting methodologies, see our ESG Reporting Index.
Our market dynamics
An attractive industry with a
runway for growth
Our markets are shaped by long-term consumer, economic,
cultural and social trends, and the regulatory environment.
Total beverage alcohol (TBA) is resilient, and we believe the
long-term trends for our industry are attractive.
Drinking occasions and practices vary, depending on local
culture and traditions. We believe that drinking in a responsible
way can be part of a balanced lifestyle in many societies
around the world.
Retail sales value of total global
alcohol market 1
Total equivalent units of
alcohol sold2
£865 billion
5 billion
New legal purchase age
consumers expected to enter
the market by 20323
600 million
1.
IWSR, 2021
2.
IWSR, 2021
3. World Bank, 2022
CROWN ROYAL WHISKY
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Diageo Annual Report 2022
Our market dynamics
An attractive industry with a
runway for growth
Our markets are shaped by long-term consumer, economic,
cultural and social trends, and the regulatory environment.
Total beverage alcohol (TBA) is resilient, and we believe the
long-term trends for our industry are attractive.
Drinking occasions and practices vary, depending on local
culture and traditions. We believe that drinking in a responsible
way can be part of a balanced lifestyle in many societies
around the world.
Retail sales value of total global
Total equivalent units of
alcohol market 1
alcohol sold2
£865 billion
5 billion
New legal purchase age
consumers expected to enter
the market by 20323
600 million
1.
IWSR, 2021
2.
IWSR, 2021
3. World Bank, 2022
CROWN ROYAL WHISKY
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Diageo Annual Report 2022
CONSUMERS WANT TO ‘DRINK BETTER’
Consumers are seeking new experiences and
higher quality products
When it comes to beverage alcohol, consumers are ‘drinking better,
not more’ 1 – increasingly choosing brands and categories that offer
superior quality, authenticity and taste. This premiumisation trend is
supported by product innovation, fuelled by higher levels of prosperity
and disposable income – and coupled with a greater desire to explore
new experiences, ingredients and serves for social occasions.
Higher price spirits tiers grew 7 times faster
than the total spirits category
IWSR, 2021, volume CAGR for the period 2011 to 2021
Impact
Over the last 10 years, brands in higher price tiers have grown volume
faster than those in lower price tiers.2 Consumers are buying a broader
range of premium products, including no- and lower-alcohol drinks,
that reflect their diet and lifestyle choices and their interest in natural
ingredients and craft production.
Our response
We have built an industry-leading portfolio of Reserve brands – through
focussed investment, brand building, the creation of a dedicated
management team – and, in many countries, a dedicated route to
market. Through the development of our Reserve portfolio, we are able
to influence the evolution of luxury spirits across different categories
and occasions, including super premium scotch and tequila.
We are also growing brands of the future, including no- and lower-
alcohol choices. We do this through a combination of acquisition, by
developing our own brands, and investing in entrepreneurs through
the Diageo-backed accelerator programme, Distill Ventures.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Invest smartly, Promote positive drinking,
Pioneer grain-to-glass sustainability
CONSUMERS ARE INCREASINGLY CHOOSING SPIRITS
Consumers who drink alcohol are increasingly
choosing spirits over beer and wine
This is a long-term trend we see occurring across the globe. In markets
where spirits is a less mature category, mainstream spirits brands can
offer quality and affordability. In more mature markets, premium core
and Reserve brands offer variety and new experiences.
+7% increase in spirits share of total beverage alcohol
IWSR, 2021, between 2011 to 2021
Impact
In markets such as the United States, household penetration of spirits
has grown ahead of wine and beer. And this accelerated during the
pandemic. This was driven by consumers adding cocktails more often
to their ‘at home’ repertoires, whilst the spirit-based ready-to-drink
category benefitted from increased consumption across more
occasions.3 In many emerging markets, spirits penetration is still low
compared to developed markets, with potential for future growth.
IWSR, 2021
1.
2.
IWSR, 2021
3. Numerator, 2022
4. WHO, 2021
5. World Bank, 2021
Our response
Our broad, global portfolio across categories and price points provides
consumers with product choices to suit different occasions and their
disposable income. Our innovation is driven by our consumer insight
on trends and occasions, ensuring we provide choices to suit evolving
consumer attitudes and motivations.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Invest smartly, Promote positive drinking
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AN EMERGING MIDDLE CLASS WHO CAN AFFORD
INTERNATIONAL-STYLE SPIRITS
Global economic development is driving the
emergence of consumers with higher
disposable income
These consumers are seeking new, aspirational experiences and
driving demand for quality drinks at a range of price points. They are
also moving away from illicit alcohol, which is estimated to account for
around 25% of global alcohol sales despite the associated health risks
and loss of tax revenue for governments.4
600m consumers expected to join
‘middle class and above’ income bracket by 2032
World Bank, 2022
Impact
Demand for international-style spirits is rising. Around 600 million
new legal purchase age consumers5 are expected to enter the
market globally by 2032. Over the same period, we expect
hundreds of millions of additional consumers to be able to afford
international-style spirits.
Our response
We have built a portfolio of lower price point options, such as Smirnoff
X1 in Africa, McDowell’s No. 1 in India and Black & White in Latin
America. As emerging market consumers’ disposable incomes rise,
these products give them access to quality at affordable prices and
enable us to help shape responsible drinking trends.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Invest smartly, Promote positive drinking
CONSUMERS ARE CHANGING HOW THEY SOCIALISE
Consumers in developed markets are moving
towards lower-tempo, food-related occasions
As the on-trade has reopened following the pandemic, high-tempo,
late-night occasions are recovering. However, the long-term shift
towards occasions before, during and after meals, and in choices
that suit ‘at home’ occasions, persists.
+7% increase in lower-tempo share of TBA
occasions in Great Britain
Kantar, 2022, between 2018 to 2022
Diageo Annual Report 2022
13
Impact
Spirits, which are versatile and adaptable, are benefitting from the
recovery of high-tempo socialising, as well as the long-term shifts in
consumers’ discovery of new serves which are suitable for a broader
range of occasions.
Our response
Our consumer insight enables us to innovate within existing brands,
anticipate new consumer occasions and meet emerging consumer
demand. This insight is supported by our ability to develop and launch
products and campaigns rapidly and effectively, reaching the right
consumers fast. This year, we launched Johnnie Walker Blonde in six
markets globally to recruit new scotch consumers, using a refreshing
long serve to appeal to casual, lower-tempo occasions. After a
successful launch, we’ll be extending Johnnie Walker Blonde to
more markets in fiscal 23.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Invest smartly, Promote positive drinking
CONSUMERS ARE CHANGING HOW THEY BUY
Digital and technology are changing the way
consumers find and buy our brands
Online shopping for alcohol is still low compared to other retail
categories, but it continues to be a fast-growing channel that
dramatically accelerated during the pandemic. Consumers are
increasingly using the internet to discover and learn about brands
and products.
+16% retail sales value growth of
global e-commerce TBA
IWSR, 2021
Impact
The lines between channels are blurring as consumers expect a
seamless omnichannel experience. And as regulations continue to
evolve and e-commerce expands further, digital channels will play
an ever-increasing role in bringing our products to consumers.
Our response
Our mission is to delight consumers across both digital and physical
touchpoints, transforming our route to consumer approach. We
continue to build strength on key platforms, such as Amazon in Europe
and Drizly in the United States, whilst development of our owned
e-commerce channels and capabilities has been a key global focus
this year. We rolled out TheBar.com to four new markets and re-
launched in one; upgraded and repositioned malts.com as the digital
hub for our Scotland brand homes and distilleries; and extended
Diageo Rare & Exceptional to a global audience. These channels
enable us deepen our relationship with consumers, as well as help
them find the right drink for the right occasion.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Invest smartly,
Promote positive drinking
Our market dynamics continued
DON JULIO TEQUILA
Luxury tequila positioned for
premiumisation in North America
In North America, tequila accounts for 15% of total spirits
retail sales value and is gaining share. It continues to
premiumise at pace, with premium price tiers growing
the fastest.1
Our luxury tequila portfolio includes Don Julio 1942, which is
the number one luxury spirit brand variant by retail sales
value in the United States.2 Its success as a luxury icon has
been driven by a combination of outstanding liquid and
powerful brand building, deeply rooted in culture. We’ve
built consumer desire over the past decade through
targeted distribution, influencer partnerships and
cultural collaborations.
This year, under the Don Julio brand, we launched two new
luxury innovations in North America, both of which
exceeded expectations on launch. This included Don Julio
Primavera, a limited edition Reposado tequila finished in
European casks, which previously held wine infused with
macerated orange peel; and Don Julio Ultima Reserva, a
36-month aged luxury Extra-Añejo tequila, making use of
the final agave harvest planted by Don Julio González and
his family in 2006. Both variants are built on key consumer
insights. Don Julio Primavera drives relevance within
informal and outdoor daytime occasions, whilst Don Julio
Ultima Reserva delivers an authentic and credible brand
experience, coupled with eye-catching packaging.
IWSR, 2021
1.
2. Nielsen + NABCA combined, 2021
14
Diageo Annual Report 2022
Impact
Spirits, which are versatile and adaptable, are benefitting from the
recovery of high-tempo socialising, as well as the long-term shifts in
consumers’ discovery of new serves which are suitable for a broader
range of occasions.
Our response
Our consumer insight enables us to innovate within existing brands,
anticipate new consumer occasions and meet emerging consumer
demand. This insight is supported by our ability to develop and launch
products and campaigns rapidly and effectively, reaching the right
consumers fast. This year, we launched Johnnie Walker Blonde in six
markets globally to recruit new scotch consumers, using a refreshing
long serve to appeal to casual, lower-tempo occasions. After a
successful launch, we’ll be extending Johnnie Walker Blonde to
more markets in fiscal 23.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Invest smartly, Promote positive drinking
CONSUMERS ARE CHANGING HOW THEY BUY
Digital and technology are changing the way
consumers find and buy our brands
Online shopping for alcohol is still low compared to other retail
categories, but it continues to be a fast-growing channel that
dramatically accelerated during the pandemic. Consumers are
increasingly using the internet to discover and learn about brands
and products.
+16% retail sales value growth of
global e-commerce TBA
IWSR, 2021
Impact
The lines between channels are blurring as consumers expect a
seamless omnichannel experience. And as regulations continue to
evolve and e-commerce expands further, digital channels will play
an ever-increasing role in bringing our products to consumers.
Our response
Our mission is to delight consumers across both digital and physical
touchpoints, transforming our route to consumer approach. We
continue to build strength on key platforms, such as Amazon in Europe
and Drizly in the United States, whilst development of our owned
e-commerce channels and capabilities has been a key global focus
this year. We rolled out TheBar.com to four new markets and re-
launched in one; upgraded and repositioned malts.com as the digital
hub for our Scotland brand homes and distilleries; and extended
Diageo Rare & Exceptional to a global audience. These channels
enable us deepen our relationship with consumers, as well as help
them find the right drink for the right occasion.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Invest smartly,
Promote positive drinking
Our market dynamics continued
DON JULIO TEQUILA
Luxury tequila positioned for
premiumisation in North America
In North America, tequila accounts for 15% of total spirits
retail sales value and is gaining share. It continues to
premiumise at pace, with premium price tiers growing
the fastest.1
Our luxury tequila portfolio includes Don Julio 1942, which is
the number one luxury spirit brand variant by retail sales
value in the United States.2 Its success as a luxury icon has
been driven by a combination of outstanding liquid and
powerful brand building, deeply rooted in culture. We’ve
built consumer desire over the past decade through
targeted distribution, influencer partnerships and
cultural collaborations.
This year, under the Don Julio brand, we launched two new
luxury innovations in North America, both of which
exceeded expectations on launch. This included Don Julio
Primavera, a limited edition Reposado tequila finished in
European casks, which previously held wine infused with
macerated orange peel; and Don Julio Ultima Reserva, a
36-month aged luxury Extra-Añejo tequila, making use of
the final agave harvest planted by Don Julio González and
his family in 2006. Both variants are built on key consumer
insights. Don Julio Primavera drives relevance within
informal and outdoor daytime occasions, whilst Don Julio
Ultima Reserva delivers an authentic and credible brand
experience, coupled with eye-catching packaging.
1.
IWSR, 2021
2. Nielsen + NABCA combined, 2021
14
Diageo Annual Report 2022
A COMPLEX REGULATORY ENVIRONMENT
The beverage alcohol industry is highly regulated
Regulation varies widely around the world, often evolving in
response to changes in society. Compliance with law and regulation
wherever we operate is a minimum requirement, and we have long
understood that a responsible alcohol company must go beyond
mere compliance.
We are proud of our brands and we want them to be enjoyed
responsibly. Through our work, we are aligned with the World Health
Organization’s goal of reducing harmful drinking by 10% by 2025.
We also advocate policies and industry standards, including minimum
legal purchase age laws and maximum blood-alcohol concentration
driving limits, in countries where these are not already in place.
607,374Δ
young people, parents and teachers
educated on the dangers of underage drinking this year
Diageo, fiscal 22
Impact
While most people who choose to enjoy alcohol do so responsibly,
the misuse of alcohol can harm individuals and those around them,
damage our industry’s reputation and make it harder for us to
create value.
Our response
We want to offer consumers the opportunity to ‘drink better, not more’
– an approach that is rooted in our social values and aligns with our
business model as a producer of premium drinks. We’re committed to
promoting moderation while campaigning to reduce harmful drinking
and advocating for better laws and industry standards. Our approach
to positive drinking includes ambitious targets for areas in which we
can have the greatest impact in reducing harm: drink driving,
underage drinking and binge drinking.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Embed everyday efficiency,
Promote positive drinking
∆ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope.
For further detail and the reporting methodologies, see our ESG Reporting Index.
Unlocking the omnichannel Scotch whisky
opportunity through malts.com
We’re actively building our omnichannel participation through a
number of initiatives. In scotch, malts.com is our direct-from-distillery
platform, offering consumers access to our scotch portfolio, connecting
them with our community of whisky makers and providing a central
hub to plan visits and book tickets to our Scotland brand homes,
wherever they are.
This year, we re-launched malts.com across five markets with a new
look and feel to reflect the changing values of our growing audience.
Designed with more than just an e-commerce platform in mind, we set
out to create a premium destination for experiences, exclusive and
personalised products, gifts and events. This allows us to nurture a
relationship with our consumers directly, whilst maintaining relevance
with consumer trends and behaviours.
CONSUMERS EXPECT BUSINESSES TO ACT RESPONSIBLY
Consumers are increasingly challenging businesses
to show how they make a positive impact across all
aspects of society
They expect to see that businesses are generating wealth,
fostering inclusion and diversity, respecting human rights, supporting
their communities and acting on important societal and environmental
issues, including climate change and water stress.
S
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R
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E
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56% of global households expected to be
‘Eco Actives’ (the most environmentally
conscious shoppers) by 2031
‘Who Cares, Who Does?’, Kantar, 2021
Impact
Earning trust and respect is fundamental to achieving our ambition.
We know our brands must continue to play an active role in society to
meet consumer demands. This must be underpinned by a business that
reduces environmental impact and promotes inclusive economic
growth, while making sure that we do business with integrity and
respect for human rights.
Our response
The 25 goals in our ‘Society 2030: Spirit of Progress’ ESG action plan
provide a platform for many of our global brands’ sustainability
programmes. These include Baileys’ launch of the Sustainable Farming
Academy in Ireland; Guinness’ regenerative agriculture plans; and a
circular packaging pilot with Smirnoff and Captain Morgan in South
East Asia. This year, we started removing cardboard gift boxes from
our premium scotch portfolio, increased spend with diverse suppliers
by more than 50%, and have trained over 190,000 hospitality workers
through the Diageo Bar Academy. In response to the conflict in
Ukraine, we’ve pledged €2 million via The Red Cross and Care
International UK for immediate humanitarian aid, and pivoted our
Learning for Life programme in Europe to support Ukrainian
refugees into work.
This market dynamic aligns with these
strategic priorities:
Sustain quality growth, Invest smartly, Promote positive
drinking, Champion inclusion and diversity,
Pioneer grain-to-glass sustainability
MALTS.COM DIGITAL HUB
Diageo Annual Report 2022
15
Our business model
Creating a truly
sustainable business
for the long term
We deliver our strategic priorities through a
business model that leverages global and local
expertise, has the consumer at its heart and
puts our responsibilities to our stakeholders
front and centre.
Since launching our ‘Society 2030: Spirit of
Progress’ ESG action plan, we’ve set out
to help create a more inclusive and sustainable
world, creating a positive impact in our company,
with our communities and for our society.
Our enablers
Our people
We’re proud of our people,
whose passion, commitment
and specialist skills make
the difference.
Our brands
We have a leading portfolio
of iconic brands. Its breadth
across categories and price
points offers choice for every
taste and celebration.
Our relationships
From grain to glass, strong,
trusted relationships with all
our stakeholders are essential
to our business.
27,987 people
200+ brands
180+ countries
Our insight and know-how
Our in-country sales and
marketing teams give us greater
agility and enhanced insight, so
we can anticipate the diverse
needs of our consumers
and customers.
Our infrastructure
We have a global network of
sites devoted to research and
development, distillation,
maturation, brewing,
warehousing and packaging
of spirits and beer.
132 sites globally
Our financial strength
We believe attractive margins,
a strong balance sheet and
solid free cash flow give us the
financial strength to execute our
strategic priorities and deliver
strong shareholder returns over
the long term.
READ MORE ABOUT OUR STRATEGIC
PRIORITIES ON PAGES 19-31, AND
OUR PRINCIPAL RISKS AND RISK
MANAGEMENT ON PAGES 42-46
1. Data points refer to fiscal 22 unless
otherwise stated
2. 88% of global employees completed
our Your Voice survey (fiscal 21: 85%)
3. Net promoter score is an internally
generated metric that indicates the
likelihood that suppliers surveyed
would recommend Diageo as a
preferred business partner, as of
November 2021
4. Oxford Economics, 2022 for
calendar year 2021
What sets us apart
Our brand portfolio
and geographic footprint
We actively manage our leading
brand portfolio to ensure we
offer consumers a broad range
of products across regions,
categories and price points. We
have leading positions in many
of the markets that are expected
to contribute most to medium-
and long-term industry growth.
Our track record in innovation and brand building
To recruit consumers, we
innovate across centuries-old
brands such as Johnnie Walker,
Tanqueray and Guinness, and
develop, grow and acquire new
brands such as Seedlip, Chase
Distillery and 21Seeds. We use
our archives in Scotland
and Ireland, two of the largest
and most comprehensive in the
drinks industry, to provide a rich
source of inspiration for our
brands. Our creative expertise is
enhanced through the use
of data and tools, which
we use to develop a deep
understanding of our
consumers and customers.
We call this combination
‘creativity with precision’.
16
Diageo Annual Report 2022
Our business model
Our business activities
The value we create1
Consumer insights
We continually evolve our
data tools to understand
consumers’ attitudes and
motivations. We convert
this information into
insights which enable us
to respond with agility
to our consumers’
interests and preferences.
Marketing
We invest in world-class
marketing to responsibly
build vibrant brands that
resonate with our
consumers. We have a
rigorous global Marketing
Code and belong to the
Global Alliance for
Responsible Media,
working with peers to
push for further consumer
and brand safeguards.
Distilling and brewing
We distil, brew, bottle
and distribute our spirits
and beer brands through
a globally co-ordinated
supply operation, working
to the highest quality and
manufacturing standards.
Where it makes sense,
we produce locally.
Sourcing
From smallholder farmers
in Africa and Mexico
to multinational
companies, we work with
our suppliers to procure
high-quality raw materials
and services, with
environmental
sustainability in mind.
Where it is practicable,
we source locally.
Innovation
Using our deep
understanding of trends
and consumer socialising
occasions, we focus on
driving sustainable
innovation that provides
new products and
experiences for
consumers, whether they
choose to drink alcohol
or not.
Selling
We grow by working
closely with our customers.
Our global and local
sales teams use our data,
digital tools and insights
to extend our sales reach,
improve our execution
and help generate value
for us and for our
customers. When our
customers grow, we
grow too.
Our relationships
with the trade
Through Diageo Reserve
World Class and Diageo Bar
Academy programmes, we
continue to build a network of
relationships with bartenders,
customers and distributors that
provides us with a strong route
to our consumers.
Our expertise in distillation
and brewing
Our supply chain teams are the
guardians of our brands’ quality
and craftsmanship. Their skills
and experience range from the
craft of barrel-making and
coppersmithing, to blending
scotch, brewing premium beer,
designing packaging and
ensuring our complex modern
supply operations are working
to the highest standards.
For our people
We want our people to be the best they can be. We offer
a diverse and inclusive workplace with opportunities for
development and progression.
90%
of respondents are proud to work for Diageo2
For our consumers
We are passionate about the role our brands play in
celebrations globally. We are committed to promoting
moderation and reducing alcohol misuse.
456 million
people reached with moderation messages from our brands
For our customers
We work closely with customers to build sustainable ways
of working that help grow their businesses through great
insight and execution.
3.3 million
bar professionals used the Diageo Bar Academy website
For our communities
We help build thriving communities by making lasting
contributions where we live, work, source and sell.
>158,000
people benefitted from our community programmes
For our suppliers
We partner with suppliers to ensure long-term, mutually
beneficial relationships. Respect for human rights is
embedded throughout our global value chain.
+39
supplier net promoter score3
For our investors
We aim to maximise long-term shareholder returns
through consistent, sustainable growth and a disciplined
approach to capital allocation.
11%
compound annual growth rate in total shareholder return
over 10 years
For governments and regulators
We contribute to economic and development priorities
and advocate laws that protect communities where
these are not already in place.
£900,000
estimated economic benefit generated for every £1 million
we contribute to national GDP4
Creating a truly
sustainable business
for the long term
We deliver our strategic priorities through a
business model that leverages global and local
expertise, has the consumer at its heart and
puts our responsibilities to our stakeholders
front and centre.
Since launching our ‘Society 2030: Spirit of
Progress’ ESG action plan, we’ve set out
to help create a more inclusive and sustainable
world, creating a positive impact in our company,
with our communities and for our society.
Our enablers
Our people
We’re proud of our people,
whose passion, commitment
and specialist skills make
the difference.
Our brands
We have a leading portfolio
of iconic brands. Its breadth
across categories and price
points offers choice for every
taste and celebration.
Our relationships
From grain to glass, strong,
trusted relationships with all
our stakeholders are essential
to our business.
27,987 people
200+ brands
180+ countries
Our insight and know-how
Our infrastructure
Our in-country sales and
marketing teams give us greater
We have a global network of
sites devoted to research and
agility and enhanced insight, so
development, distillation,
we can anticipate the diverse
maturation, brewing,
needs of our consumers
and customers.
warehousing and packaging
of spirits and beer.
132 sites globally
Our financial strength
We believe attractive margins,
a strong balance sheet and
solid free cash flow give us the
financial strength to execute our
strategic priorities and deliver
strong shareholder returns over
the long term.
READ MORE ABOUT OUR STRATEGIC
PRIORITIES ON PAGES 19-31, AND
OUR PRINCIPAL RISKS AND RISK
MANAGEMENT ON PAGES 42-46
1. Data points refer to fiscal 22 unless
otherwise stated
2. 88% of global employees completed
our Your Voice survey (fiscal 21: 85%)
3. Net promoter score is an internally
generated metric that indicates the
likelihood that suppliers surveyed
would recommend Diageo as a
preferred business partner, as of
November 2021
4. Oxford Economics, 2022 for
calendar year 2021
What sets us apart
Our brand portfolio
and geographic footprint
brand portfolio to ensure we
offer consumers a broad range
of products across regions,
categories and price points. We
have leading positions in many
We actively manage our leading
innovate across centuries-old
To recruit consumers, we
drinks industry, to provide a rich
source of inspiration for our
Our track record in innovation and brand building
brands such as Johnnie Walker,
brands. Our creative expertise is
Tanqueray and Guinness, and
enhanced through the use
develop, grow and acquire new
of data and tools, which
brands such as Seedlip, Chase
Distillery and 21Seeds. We use
of the markets that are expected
our archives in Scotland
to contribute most to medium-
and long-term industry growth.
and Ireland, two of the largest
and most comprehensive in the
we use to develop a deep
understanding of our
consumers and customers.
We call this combination
‘creativity with precision’.
16
Diageo Annual Report 2022
Diageo Annual Report 2022
17
Our people
Highly engaged people,
and advantaged culture
Unlocking the growth and potential of our people
Our talent strategy helps us to develop the best talent for Diageo by
providing our people with the right developmental experiences to
grow and develop. During fiscal 22, the number of international moves
undertaken by our people increased by 32%, demonstrating our
continued investment in developing our talent and building a longer-
term talent pipeline. We are making significant progress in acquiring
the best and most diverse talent externally, by digitising our recruitment
processes and making it easy for our people to refer great talent.
Similarly, our new offer and onboarding process has significantly
reduced our ‘time to fill roles’, supporting us in attracting and
accelerating the performance of new joiners.
Enabling a culture of agility and experimentation
To create speed and agility in a dynamic and volatile environment,
we are simplifying our internal processes through the Radical Liberation
programme – a series of interventions to reduce and stop processes
that get in the way of us performing at our best. Also, we are forming
more cross-functional, cross-market teams to leverage diversity, create
a culture of experimentation and provide learning opportunities for our
people. This has enabled us to quickly launch and scale new initiatives,
such as the pan-African Johnnie Walker ‘Keep Walking’ campaign
which launched across Africa in fiscal 22 and delivered significant
growth for the brand.
Average number of employees by region by gender3
Region5
North America
Europe
Asia Pacific
Africa
Latin America
and Caribbean
Total
Men
1,719
5,487
5,634
2,445
% Women
59% 1,150
58% 3,914
69% 2,481
67% 1,185
%
40%
41%
30%
32%
%
Not
declared4
Total
1% 2,897
28
1% 9,460
59
89
1% 8,204
18 0% 3,647
2,349
17,634
62% 1,398
63% 10,127
37%
36%
32
226
1% 3,779
1% 27,987
Average number of employees by role by gender3
Role
Executive
Senior manager6
Line manager7
Supervised
employee8
Diageo (total)
Men
8
304
2,299
% Women
%
62%
5 38%
56% 239 44%
66% 1,155 33%
Not
declared4
Total
%
13
0 0%
1 0%
544
11 0% 3,465
15,022
17,634
63% 8,729 36%
63% 10,127 36%
213
226
1% 23,965
1% 27,987
1. This data is correct as of 30 June 2022
2. This is based upon the respondents to the fiscal 22 Your Voice engagement survey
3. This data has been compiled based on the proportion of employees who have
identified their gender identity as male, female or undisclosed, and will not be fully
representative of the gender identity or diversity within our employee population
4. This data represents the proportion of employees who have chosen not to disclose their
gender identity as male or female
5. Employees have been allocated to the region in which they reside
6. Top leadership positions in Diageo, excluding Executive Committee
7. All Diageo employees (non-senior managers) with one or more direct reports
8. All Diageo employees (non-senior managers) who have no direct reports
DIAGEO EMPLOYEES AND BRANDS
At Diageo, we are committed to
building an engaging and inclusive
culture that empowers our people
to thrive and grow.
Advantaged culture fuelled by our people’s passion
for our brands and business
Our most valuable assets are the 27,9871 people who work in our
business every day, with an incredible passion for our brands, strong
ownership mindset and accountability for delivering our Performance
Ambition. Diageo’s culture is rooted in this deep sense of purpose,
passion and personal connections to our brands and each other.
The Your Voice survey gives us the opportunity to hear from our people
on how they are experiencing work at Diageo; the output of which
further shapes our culture. This year, our Employee Engagement Index
increased by 1 percentage point to 82%, and our Employer Advocacy
score for working at Diageo improved by 5% versus last year.
Commitment to our people’s wellbeing
We believe that our people are most productive when they are
physically and mentally thriving, emotionally balanced, financially
secure, and socially connected. Recently, we launched our Global
Wellbeing Philosophy, outlining our commitment to creating an
environment where people can thrive, along with practical frameworks
and tools to support our people in managing their wellbeing.
In addition to local wellbeing initiatives, such as free Wellbeing Day
and Mental Health capability programmes, we are designing our
new office spaces with wellbeing at the heart. For example, our new
Global Headquarters in Soho, London is equipped with wellness
and fitness classes.
82%
Employee Engagement
Index2
(+1 vs 2021)
80%
Diageo is sufficiently
supporting my health
and wellbeing2
(+2 vs 2021)
18
Diageo Annual Report 2022
Our people
Our strategic priorities
Highly engaged people,
and advantaged culture
Delivering our
Performance Ambition
Our strategic priorities support the achievement of our ambition to
be one of the best performing, most trusted and respected consumer
products companies in the world. Through them, we deliver the
strategic outcomes against which we measure our performance.
Our strategic priorities
stain quality gro w th
ote positive
drinking
u
S
m
o
r
P
E
m
b
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d
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h
a
m
a
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p
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d
o
n
d
i
i
v
n
e
v
e
r
y
d
a
y
e
f
f
i
c
i
e
n
c
y
e
c
r
l
s
u
i
t
y
s
i
o
n
Our ambition
To be one of the best
performing, most trusted
and respected consumer
products companies
in the world.
Pioneer grain -
sustaina b i
t o -
t
i
l
y
g l a ss
Invest sma r t
l y
Our strategic outcomes
EG
CT
Efficient growth
Consistently grow
organic net sales, grow
operating profit, deliver
strong free cash flow
Credibility and trust
Trusted by stakeholders
for doing business the
right way, from grain
to glass
CVC
Consistent value
creation
Top-tier total shareholder
returns, increase return
on invested capital
EP
Engaged people
High-performing
and engaged teams,
continuous learning,
inclusive culture
Our culture and values
Our culture underpins the work we do to deliver our strategic
priorities and is key to our success.
It is shaped by our values and encourages our people to:
lead bold execution that ensures consumers delight in our
brands; act like entrepreneurs and encourage learning; take
ownership for shaping and achieving our ambition; and create
an inclusive environment where everyone can be at their best.
We strive to share our values with our stakeholders,
building mutually fulfilling relationships and partnerships.
Passionate about consumers and customers
Our curiosity and insights deliver experiences and products
that delight and drive growth.
Freedom to succeed
We foster an entrepreneurial spirit by giving each other the
freedom to succeed. It’s how we move with pace and keep
our big company small.
Proud of what we do
We are proud of how we operate and what we stand for.
We act sensitively with the highest standards for integrity and
social responsibility.
Valuing each other
We are creating a truly inclusive culture. We seek diversity
in people and perspectives, and believe in the benefits it
delivers across our business.
Be the best
We are restless: always learning, always improving.
We strive to be the best at work and in our communities.
Diageo Annual Report 2022
19
Unlocking the growth and potential of our people
Our talent strategy helps us to develop the best talent for Diageo by
providing our people with the right developmental experiences to
grow and develop. During fiscal 22, the number of international moves
undertaken by our people increased by 32%, demonstrating our
continued investment in developing our talent and building a longer-
term talent pipeline. We are making significant progress in acquiring
the best and most diverse talent externally, by digitising our recruitment
processes and making it easy for our people to refer great talent.
Similarly, our new offer and onboarding process has significantly
reduced our ‘time to fill roles’, supporting us in attracting and
accelerating the performance of new joiners.
Enabling a culture of agility and experimentation
To create speed and agility in a dynamic and volatile environment,
we are simplifying our internal processes through the Radical Liberation
programme – a series of interventions to reduce and stop processes
that get in the way of us performing at our best. Also, we are forming
more cross-functional, cross-market teams to leverage diversity, create
a culture of experimentation and provide learning opportunities for our
people. This has enabled us to quickly launch and scale new initiatives,
such as the pan-African Johnnie Walker ‘Keep Walking’ campaign
which launched across Africa in fiscal 22 and delivered significant
growth for the brand.
Average number of employees by region by gender3
Region5
North America
Europe
Asia Pacific
Africa
Latin America
and Caribbean
Total
% Women
%
declared4
%
Total
Men
1,719
5,487
5,634
2,445
59% 1,150
58% 3,914
69% 2,481
67% 1,185
40%
41%
30%
32%
Not
28
59
89
1% 2,897
1% 9,460
1% 8,204
18 0% 3,647
2,349
17,634
62% 1,398
63% 10,127
37%
36%
32
226
1% 3,779
1% 27,987
Average number of employees by role by gender3
Role
Executive
Senior manager6
Men
8
304
% Women
%
declared4
%
62%
5 38%
56% 239 44%
0 0%
1 0%
Total
13
544
Line manager7
2,299
66% 1,155 33%
11 0% 3,465
Not
Supervised
employee8
Diageo (total)
15,022
17,634
63% 8,729 36%
63% 10,127 36%
213
226
1% 23,965
1% 27,987
1. This data is correct as of 30 June 2022
2. This is based upon the respondents to the fiscal 22 Your Voice engagement survey
3. This data has been compiled based on the proportion of employees who have
identified their gender identity as male, female or undisclosed, and will not be fully
representative of the gender identity or diversity within our employee population
4. This data represents the proportion of employees who have chosen not to disclose their
gender identity as male or female
5. Employees have been allocated to the region in which they reside
6. Top leadership positions in Diageo, excluding Executive Committee
7. All Diageo employees (non-senior managers) with one or more direct reports
8. All Diageo employees (non-senior managers) who have no direct reports
DIAGEO EMPLOYEES AND BRANDS
At Diageo, we are committed to
building an engaging and inclusive
culture that empowers our people
to thrive and grow.
Advantaged culture fuelled by our people’s passion
for our brands and business
Our most valuable assets are the 27,9871 people who work in our
business every day, with an incredible passion for our brands, strong
ownership mindset and accountability for delivering our Performance
Ambition. Diageo’s culture is rooted in this deep sense of purpose,
passion and personal connections to our brands and each other.
The Your Voice survey gives us the opportunity to hear from our people
on how they are experiencing work at Diageo; the output of which
further shapes our culture. This year, our Employee Engagement Index
increased by 1 percentage point to 82%, and our Employer Advocacy
score for working at Diageo improved by 5% versus last year.
Commitment to our people’s wellbeing
We believe that our people are most productive when they are
physically and mentally thriving, emotionally balanced, financially
secure, and socially connected. Recently, we launched our Global
Wellbeing Philosophy, outlining our commitment to creating an
environment where people can thrive, along with practical frameworks
and tools to support our people in managing their wellbeing.
In addition to local wellbeing initiatives, such as free Wellbeing Day
and Mental Health capability programmes, we are designing our
new office spaces with wellbeing at the heart. For example, our new
Global Headquarters in Soho, London is equipped with wellness
and fitness classes.
82%
Employee Engagement
Index2
(+1 vs 2021)
80%
Diageo is sufficiently
supporting my health
and wellbeing2
(+2 vs 2021)
18
Diageo Annual Report 2022
Our strategic priorities continued
Sustain quality growth
Creating sustainable and consistent quality growth is at the heart of our
ambition to be ‘one of the best performing’. It means delivering consistent
net sales and margin growth as well as top-tier shareholder returns.
Delivering our strategic outcomes
Sustained quality growth contributes to the delivery of our strategic
outcomes of Efficient growth, Consistent value creation and
Credibility and trust.
EG
CVC
CT
Delivering sustained, quality growth is not new to us. Brands such as
Guinness, Johnnie Walker and Crown Royal show how the right
approach to quality, brand building, innovation and investing for the
long term can build lasting value. To sustain quality growth, we focus
on developing the successful new brands of the future; on growing
volume, price and mix – what we call Revenue Growth Management
(RGM); on executing the most effective route to our consumers; and
on working with governments and stakeholders around the world to
ensure our brands compete on a more equal playing field for alcohol
taxation and regulatory policy.
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR
MARKET DYNAMICS ON PAGES 12-15
Building the luxury
opportunity
20
Diageo Annual Report 2022
Progress in fiscal 22
• Leveraged RGM in challenging inflationary environment,
upweighting strategic pricing capabilities
• Launched innovations including Johnnie Walker High Rye, Don Julio
Ultima Reserva and Gordon’s Pink 0.0. Also launched Smirnoff
Raspberry Crush Vodka Lemonade RTD, Cîroc Vodka Spritz, Bulleit
Crafted Cocktails and Seedlip RTDs, supporting expansion of ready
to drink portfolio
• Launched no-alcohol portfolio in additional markets
• Continued to actively manage our portfolio of brands, announcing:
an agreement to sell the Windsor business; the sale of Picon, the
French liqueur brand, and of the Meta Abo Brewery in Ethiopia; and
an agreement by United Spirits Limited to dispose of and franchise
select Popular brands in India
• Enhanced and relaunched malts.com as a digital hub for our
Scotland brand homes and distilleries; relaunched TheBar.com, our
flagship direct-to-consumer site, in Great Britain; and introduced it in
the United States, Venezuela, Mexico and Kenya
Looking ahead to fiscal 23
• Continue to drive quality market share
• Continue to embed RGM plan globally to reduce impact of cost
inflation and support long-term growth
• Accelerate the transformation and integration of our digital
capabilities, tools and platforms across marketing and global sales
Our super-premium-plus portfolio of luxury brands grew 31% this year,
contributing 27% of our reported net sales.
As the premiumisation trend evolves, so too has the idea of luxury.
And we’re seizing the opportunity to position our brands for further
sustained growth with a more diverse, luxury consumer looking for
unique and personalised experiences.
The Singleton has introduced a new generation of consumers to single
malts through its accessible, fresh and distinctive perspective. Its
simplified portfolio and refreshed brand image are recruiting more
diverse consumers.
In China, the fastest growing single malt market,1 we are building the
brand at the high end of the luxury market. We have invested in
unique innovations, such as The Singleton 39-Year-Old (Epicurean
Odyssey Series), and created experiences that highlight the brand’s
most aged variants – contributing to an increase in share.2
In Great Britain, we launched our ‘This will be Good’ campaign in
October 2021, including the brand’s first ever television advertisement,
which brings to life the delicious taste of The Singleton. As part of the
campaign, we partnered with celebrated tastemaker Monica Galetti
to create delicious recipes and cocktails featuring The Singleton.
Our plans are delivering results, with The Singleton now the fastest
growing single malt in the United Kingdom.3
1. Of top 15 single malt markets globally by retail sales value, IWSR, 2021
2. SmartPath and Think&Do: rolling 12 months to 31 March 2022
3. Of top 20 single malt brands by retail sales value, IWSR, 2021
THE SINGLETON SINGLE MALT SCOTCH WHISKY
Guinness: building for the long term
When it comes to quality growth, Guinness is showing the way.
After a period of challenged performance followed by the closure
of bars and pubs during Covid-19, the iconic brand is reaping the
dividends of a strategy that builds on its legacy of ‘power, goodness
and communion’, embedding its place in culture and attracting a
more diverse consumer base.
Guinness is our second biggest brand,4 and the work we’re doing to
deliver its ambition of becoming the ‘most creative, innovative and
sustainable beer in the world’ is yielding results. This year, organic
net sales grew 32%.
Coming alive in culture
Guinness’ distinctive voice is informed by deep consumer insight and
powered by precision marketing to ensure it connects with key cultural
moments. In August 2021, Guinness launched its first pan-African
campaign in five years: Black Shines Brightest. Inspired by the bold
and unique beer, Guinness Foreign Extra Stout, the campaign
celebrates African creativity and ingenuity, and features some of the
best-known local culture makers, including Ghanaian choreographer
Incredible Zigi; Nigerian designer Adebayo Oke-Lawal and Kenyan
media personality Adelle Onyango. Proving that it resonated locally,
Black Shines Brightest led to the recruitment of 1.5 million new
Guinness drinkers across Africa during fiscal 22.
Innovation for new consumer occasions
Our recent award-winning dispense innovations and our liquid
innovations have been focussed on ensuring high-quality Guinness
is accessible in emerging occasions at home and in new places and
spaces, no matter their size or physical setup. Following the successful
launch of Guinness MicroDraught in pubs, restaurants and bars, we
launched a limited first release for consumers in Great Britain in
December 2021. This launch delivered Guinness Draught on tap in
consumers’ homes for the very first time. And we also introduced
Guinness NitroSurge in Ireland this year. It provides an easy new way
to experience the famous ‘surge and settle‘ at home, increasing the
number of occasions in which consumers choose Guinness.
Investing for the long term
In addition to our investments in innovation and marketing, we also
announced, this year, investments in two new Guinness visitor
experiences that are due to open in Chicago and London in 2023.
And to support our sustainability ambitions, in February, we embarked
on a three-year regenerative agriculture pilot in Ireland, to highlight
opportunities to reduce the carbon emissions of barley production.
4. By organic net sales value
GUINNESS FOREIGN EXTRA STOUT
Our strategic priorities continued
Sustain quality growth
Creating sustainable and consistent quality growth is at the heart of our
ambition to be ‘one of the best performing’. It means delivering consistent
net sales and margin growth as well as top-tier shareholder returns.
Delivering our strategic outcomes
Progress in fiscal 22
Sustained quality growth contributes to the delivery of our strategic
outcomes of Efficient growth, Consistent value creation and
Credibility and trust.
EG
CVC
CT
Delivering sustained, quality growth is not new to us. Brands such as
Guinness, Johnnie Walker and Crown Royal show how the right
approach to quality, brand building, innovation and investing for the
long term can build lasting value. To sustain quality growth, we focus
on developing the successful new brands of the future; on growing
volume, price and mix – what we call Revenue Growth Management
(RGM); on executing the most effective route to our consumers; and
on working with governments and stakeholders around the world to
ensure our brands compete on a more equal playing field for alcohol
taxation and regulatory policy.
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR
MARKET DYNAMICS ON PAGES 12-15
Building the luxury
opportunity
• Leveraged RGM in challenging inflationary environment,
upweighting strategic pricing capabilities
• Launched innovations including Johnnie Walker High Rye, Don Julio
Ultima Reserva and Gordon’s Pink 0.0. Also launched Smirnoff
Raspberry Crush Vodka Lemonade RTD, Cîroc Vodka Spritz, Bulleit
Crafted Cocktails and Seedlip RTDs, supporting expansion of ready
to drink portfolio
• Launched no-alcohol portfolio in additional markets
• Continued to actively manage our portfolio of brands, announcing:
an agreement to sell the Windsor business; the sale of Picon, the
French liqueur brand, and of the Meta Abo Brewery in Ethiopia; and
an agreement by United Spirits Limited to dispose of and franchise
select Popular brands in India
• Enhanced and relaunched malts.com as a digital hub for our
Scotland brand homes and distilleries; relaunched TheBar.com, our
flagship direct-to-consumer site, in Great Britain; and introduced it in
the United States, Venezuela, Mexico and Kenya
Looking ahead to fiscal 23
• Continue to drive quality market share
• Continue to embed RGM plan globally to reduce impact of cost
inflation and support long-term growth
• Accelerate the transformation and integration of our digital
capabilities, tools and platforms across marketing and global sales
Our super-premium-plus portfolio of luxury brands grew 31% this year,
contributing 27% of our reported net sales.
As the premiumisation trend evolves, so too has the idea of luxury.
And we’re seizing the opportunity to position our brands for further
sustained growth with a more diverse, luxury consumer looking for
unique and personalised experiences.
The Singleton has introduced a new generation of consumers to single
malts through its accessible, fresh and distinctive perspective. Its
simplified portfolio and refreshed brand image are recruiting more
diverse consumers.
In China, the fastest growing single malt market,1 we are building the
brand at the high end of the luxury market. We have invested in
unique innovations, such as The Singleton 39-Year-Old (Epicurean
Odyssey Series), and created experiences that highlight the brand’s
most aged variants – contributing to an increase in share.2
In Great Britain, we launched our ‘This will be Good’ campaign in
October 2021, including the brand’s first ever television advertisement,
which brings to life the delicious taste of The Singleton. As part of the
campaign, we partnered with celebrated tastemaker Monica Galetti
to create delicious recipes and cocktails featuring The Singleton.
Our plans are delivering results, with The Singleton now the fastest
growing single malt in the United Kingdom.3
1. Of top 15 single malt markets globally by retail sales value, IWSR, 2021
2. SmartPath and Think&Do: rolling 12 months to 31 March 2022
3. Of top 20 single malt brands by retail sales value, IWSR, 2021
THE SINGLETON SINGLE MALT SCOTCH WHISKY
20
Diageo Annual Report 2022
Diageo Annual Report 2022
21
Our strategic priorities continued
Embed everyday efficiency
Everyday efficiency creates the fuel that
allows us to invest smartly and sustain
quality growth. At its heart, everyday
efficiency is a mindset and a culture,
which everyone in Diageo is encouraged
to bring to life in their daily work.
Delivering our strategic outcomes
Embedding everyday efficiency contributes to the delivery of our
strategic outcomes of Efficient growth and Consistent value creation.
EG
CVC
We want to ensure our resources are deployed where they are most
effective. This means using technology and data analytics to make
better, faster decisions and to work in a more agile way. It also means
simplifying our business, so that we can liberate our teams to better
meet the needs of our consumers and customers. At the same time as
freeing resources to focus on great performance, everyday efficiency
generates savings that we can reinvest smartly.
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR
MARKET DYNAMICS ON PAGES 12-15
Progress in fiscal 22
• Continued to scale efficiencies by embedding a new
operating model across global supply and procurement
• Rolled out Diageo One, our digital marketplace for
customers, to seven further countries, now covering over
43,000 customers
• Continued to improve process controls in our supply
operation to reduce waste, optimise the use of raw
materials, and unlock efficiencies through the introduction
of additional automation
• Enhanced EDGE365 capabilities through the introduction
of an automated contract management function in
the application
Looking ahead to fiscal 23
• Enhance focus on everyday efficiency and productivity
• Initiate supply chain agility programme, spanning five years
from fiscal 23, to strengthen our supply chain, improve its
resilience and agility, drive efficiencies, deliver additional
productivity savings and make our supply operations more
sustainable. Programme expected to have a five-year
payback period, with the majority of savings delivered in
fiscal 25 and beyond
• Continue to innovate with EDGE365, adding capabilities to
further improve customer service and efficiency
• Extend usage of Diageo One
• Accelerate the development and progress of the
digitalisation of our marketing and sales operations
• Continue investment in data analytics and automation
EDGE365: digitalisation to enhance
efficiency and support growth
EDGE365, our digital sales tool, delivers a globally consistent way
of selling and supports our ambition to be our customers’ preferred
business partner. Launched in 2019, it’s used in 23 countries covering
over 67% of our reported net sales, to add value for our customers
– the pubs, bars, restaurants and stores that sell our products.
The tool provides real-time access to insights and analytics that are
tailored to support the growth of our customers’ businesses. And it
simplifies our sales activities by providing, at the touch of a button,
all the information our teams need for their customer sales meetings.
The efficiency delivered through EDGE365 means our people can
spend more quality time with more customers. And it’s delivering
results: overall, since we began the digitalisation of our sales force
three years ago, we have been able to call on 40% more customer
outlets globally.
In Kenya, where over 1,000 salespeople use EDGE365, the tool
recommends the most appropriate product assortment and
promotional activities to support the growth of customers’
businesses. And for Diageo, the number of sales calls per day is up
14%1 since we introduced EDGE365 in Kenya in 2021. This is being
achieved with the same resource and working hours, and has led
to a year-on-year reduction in our cost to serve.
1. From introduction in 2021 to 31 May 2022
EXAMPLE OF EDGE365 INTERFACE
22
Diageo Annual Report 2022
Our strategic priorities continued
Embed everyday efficiency
Everyday efficiency creates the fuel that
allows us to invest smartly and sustain
quality growth. At its heart, everyday
efficiency is a mindset and a culture,
which everyone in Diageo is encouraged
to bring to life in their daily work.
Delivering our strategic outcomes
Embedding everyday efficiency contributes to the delivery of our
strategic outcomes of Efficient growth and Consistent value creation.
EG
CVC
We want to ensure our resources are deployed where they are most
effective. This means using technology and data analytics to make
better, faster decisions and to work in a more agile way. It also means
simplifying our business, so that we can liberate our teams to better
meet the needs of our consumers and customers. At the same time as
freeing resources to focus on great performance, everyday efficiency
generates savings that we can reinvest smartly.
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR
MARKET DYNAMICS ON PAGES 12-15
Progress in fiscal 22
• Continued to scale efficiencies by embedding a new
operating model across global supply and procurement
• Rolled out Diageo One, our digital marketplace for
customers, to seven further countries, now covering over
43,000 customers
• Continued to improve process controls in our supply
operation to reduce waste, optimise the use of raw
materials, and unlock efficiencies through the introduction
of additional automation
• Enhanced EDGE365 capabilities through the introduction
of an automated contract management function in
the application
Looking ahead to fiscal 23
• Enhance focus on everyday efficiency and productivity
• Initiate supply chain agility programme, spanning five years
from fiscal 23, to strengthen our supply chain, improve its
resilience and agility, drive efficiencies, deliver additional
productivity savings and make our supply operations more
sustainable. Programme expected to have a five-year
payback period, with the majority of savings delivered in
fiscal 25 and beyond
• Continue to innovate with EDGE365, adding capabilities to
further improve customer service and efficiency
• Extend usage of Diageo One
• Accelerate the development and progress of the
digitalisation of our marketing and sales operations
• Continue investment in data analytics and automation
EDGE365: digitalisation to enhance
efficiency and support growth
EDGE365, our digital sales tool, delivers a globally consistent way
of selling and supports our ambition to be our customers’ preferred
business partner. Launched in 2019, it’s used in 23 countries covering
over 67% of our reported net sales, to add value for our customers
– the pubs, bars, restaurants and stores that sell our products.
The tool provides real-time access to insights and analytics that are
tailored to support the growth of our customers’ businesses. And it
simplifies our sales activities by providing, at the touch of a button,
all the information our teams need for their customer sales meetings.
The efficiency delivered through EDGE365 means our people can
spend more quality time with more customers. And it’s delivering
results: overall, since we began the digitalisation of our sales force
three years ago, we have been able to call on 40% more customer
outlets globally.
In Kenya, where over 1,000 salespeople use EDGE365, the tool
recommends the most appropriate product assortment and
promotional activities to support the growth of customers’
businesses. And for Diageo, the number of sales calls per day is up
14%1 since we introduced EDGE365 in Kenya in 2021. This is being
achieved with the same resource and working hours, and has led
to a year-on-year reduction in our cost to serve.
1. From introduction in 2021 to 31 May 2022
EXAMPLE OF EDGE365 INTERFACE
Supporting supply chain visibility
in volatile times
In fiscal 22, we shipped more than 100,000 product containers to over
130 countries around the world, working with more than 40 carriers.
With this level of complexity, visibility is crucial – especially at a time
of significant global supply chain volatility.
Our integrated logistics platform, the Luminate Control Tower (LCT),
has transformed how we manage operations. It allows us to track
global ocean freight movements in real time and make interventions
that are driving cost efficiencies and improving customer service.
Prior to the LCT, tracking each shipment was challenging and
time-consuming for our teams. Tracking relied on manual processes
and third-party systems – meaning information was often out of date or
inaccurate. We recognised that investing in a platform integrated with
existing carrier infrastructure would transform the way we manage
operations. And enable us to provide more accurate, timely updates
to our customers, helping them to better manage their stock levels.
With the LCT, we can now predict and plan warehouse capacity and
efficiencies up to three months in advance, giving teams the time to
manage common challenges like port congestion. And we have
reduced our spend on air freight, a costly remedy for shipping delays,
by almost 90% this year.
The visibility the LCT delivers has allowed us to proactively respond to the
changing logistics environment, anticipate potential delays, alert markets
and customers, and take fast remedial action – even in the most
challenging situations. This was particularly evident during the Suez Canal
obstruction in 2021, which disrupted worldwide shipping. Using the LCT,
we were able to rapidly identify the markets and customers that would be
impacted by both the immediate backlog of vessels and the broader
disruption in shipping, which lasted for many months. As a result, our
colleagues and customers were able to act swiftly to manage the
disruption. Previously, it would have taken weeks to identify and notify
markets of the impact of an issue of this scale.
The LCT now covers more than 96% of our ocean carrier network. It is
helping drive a more future-focussed mindset, where our logistics planning
is no longer reactive but predictive, enabling us to manage our business
more efficiently and effectively, and better support our customers.
EXAMPLE OF THE LUMINATE CONTROL TOWER INTERFACE
22
Diageo Annual Report 2022
Diageo Annual Report 2022
23
Our strategic priorities continued
Invest smartly
We are investing in the future success of our
business – but that investment needs to be
‘smart’ to support the delivery of consistent
performance and enable sustainable,
quality growth.
Delivering our strategic outcomes
Investing smartly contributes to the delivery of our strategic outcomes
of Efficient growth, Consistent value creation and Engaged people.
EG
CVC
EP
We focus our investment in areas where we believe it will bring the
greatest benefits: our people; advertising and promotional (A&P)
spend; technology, data and e-commerce; capital expenditure; and
mergers and acquisitions (M&A).
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR MARKET DYNAMICS
ON PAGES 12-15 AND ABOUT OUR PEOPLE ON PAGE 18
Investing for the long term
Progress in fiscal 22
• Invested in high-growth categories and enabling technologies,
including the acquisitions of 21Seeds, the super-premium flavoured
tequila brand; Mezcal Unión, a premium artisinal mezcal brand;
and Vivanda, the owners of FlavorPrint technology
• Opened Johnnie Walker Princes Street, our global visitor attraction
in Edinburgh and the centrepiece of our £185 million investment in
whisky tourism in Scotland
• Opened our first carbon-neutral distillery in Lebanon, Kentucky
• Announced establishment of new research and development centre
in Shanghai to further our ambitions in China
• Announced C$94 million joint investment with Hydro-Québec and
the governments of Québec and Canada, to make our Salaberry-
de-Valleyfield distillery carbon neutral by 2025
Looking ahead to fiscal 23
• Continue to develop our data tools and embed analytics
capabilities to further improve our return on investment, and enable
faster decision-making and execution across our marketing, sales
and brand homes
• Continue to actively manage and invest in our portfolio of brands
and brand experiences
• Accelerate investment in support of 2030 carbon reduction targets
Investing smartly means investing in the future success of our business.
This supports the delivery of consistent performance and enables
sustainable, quality growth. A core element of that growth is investing
in production capacity in fast-growing strategic categories.
In September 2021, we launched the expansion of our tequila
production capacity in Mexico through an investment of over US$500
million. With our tequila volumes growing 35% over the last five years,1
this investment will support future category growth.
in Illinois, in March 2022. It has capacity to produce over 25 million
cases of RTD cocktails.
In China, we broke ground on the Eryuan Malt Whisky Distillery.
It will produce our first China-origin, single malt whisky and be
carbon neutral on opening. Also featuring an immersive visitor centre,
our $75 million investment in this distillery is part of our long-term
growth plans in this key strategic market – the world’s largest for total
beverage alcohol.3
We’re also investing to add capacity for Crown Royal Canadian
Whisky, North America’s most valuable whisk(e)y brand.2 A new
carbon-neutral facility in Canada, announced in March 2022, will
support our growth ambitions.
To support growth plans for our ready to drink (RTD) portfolio of
premium drinks in North America, we opened our new canning facility
And, in March 2022, to support the growth of Guinness, we announced
a £40.5 million investment in capacity expansion at our packaging
facilities in Belfast, Northern Ireland, and Runcorn, England.
1. Volume CAGR fiscal 18 to fiscal 22
2. Retail sales value, IWSR, 2021
3. Volume and retail sales value, IWSR, 2021
RENDER OF ERYUAN DISTILLERY
24
Diageo Annual Report 2022
Our strategic priorities continued
Invest smartly
We are investing in the future success of our
Progress in fiscal 22
business – but that investment needs to be
‘smart’ to support the delivery of consistent
performance and enable sustainable,
quality growth.
Delivering our strategic outcomes
Investing smartly contributes to the delivery of our strategic outcomes
of Efficient growth, Consistent value creation and Engaged people.
EG
CVC
EP
We focus our investment in areas where we believe it will bring the
greatest benefits: our people; advertising and promotional (A&P)
spend; technology, data and e-commerce; capital expenditure; and
mergers and acquisitions (M&A).
• Invested in high-growth categories and enabling technologies,
including the acquisitions of 21Seeds, the super-premium flavoured
tequila brand; Mezcal Unión, a premium artisinal mezcal brand;
and Vivanda, the owners of FlavorPrint technology
• Opened Johnnie Walker Princes Street, our global visitor attraction
in Edinburgh and the centrepiece of our £185 million investment in
whisky tourism in Scotland
• Opened our first carbon-neutral distillery in Lebanon, Kentucky
• Announced establishment of new research and development centre
in Shanghai to further our ambitions in China
• Announced C$94 million joint investment with Hydro-Québec and
the governments of Québec and Canada, to make our Salaberry-
de-Valleyfield distillery carbon neutral by 2025
Looking ahead to fiscal 23
• Continue to develop our data tools and embed analytics
capabilities to further improve our return on investment, and enable
faster decision-making and execution across our marketing, sales
• Continue to actively manage and invest in our portfolio of brands
and brand homes
and brand experiences
READ MORE ABOUT HOW WE ARE RESPONDING TO OUR MARKET DYNAMICS
ON PAGES 12-15 AND ABOUT OUR PEOPLE ON PAGE 18
• Accelerate investment in support of 2030 carbon reduction targets
Investing for the long term
Investing smartly means investing in the future success of our business.
in Illinois, in March 2022. It has capacity to produce over 25 million
This supports the delivery of consistent performance and enables
cases of RTD cocktails.
sustainable, quality growth. A core element of that growth is investing
in production capacity in fast-growing strategic categories.
In China, we broke ground on the Eryuan Malt Whisky Distillery.
It will produce our first China-origin, single malt whisky and be
In September 2021, we launched the expansion of our tequila
carbon neutral on opening. Also featuring an immersive visitor centre,
production capacity in Mexico through an investment of over US$500
our $75 million investment in this distillery is part of our long-term
million. With our tequila volumes growing 35% over the last five years,1
growth plans in this key strategic market – the world’s largest for total
this investment will support future category growth.
beverage alcohol.3
We’re also investing to add capacity for Crown Royal Canadian
Whisky, North America’s most valuable whisk(e)y brand.2 A new
And, in March 2022, to support the growth of Guinness, we announced
a £40.5 million investment in capacity expansion at our packaging
carbon-neutral facility in Canada, announced in March 2022, will
facilities in Belfast, Northern Ireland, and Runcorn, England.
support our growth ambitions.
To support growth plans for our ready to drink (RTD) portfolio of
premium drinks in North America, we opened our new canning facility
1. Volume CAGR fiscal 18 to fiscal 22
2. Retail sales value, IWSR, 2021
3. Volume and retail sales value, IWSR, 2021
RENDER OF ERYUAN DISTILLERY
CROWN ROYAL
CANADIAN WHISKY
Creativity with precision:
investing efficiently
and effectively
We have a track record of investing in our brands to support their
long-term growth. We combine creativity with precision, to ensure
that we’re maximising the impact of our investment. And with
consumers increasingly looking for personalised and unique
experiences, we’re bringing together data and analytics to reach
more of the right consumers more often, at the right times and in
the right places, with the right message for them.
By enhancing our data and analytics capabilities, our content
and engagement better reflect consumers’ interests, improving
their experience on the digital platforms where they interact
with our brands. And we use data and analytics to optimise the
consumer experience and the investment choices we make to
support this work.
Taking this approach across our marketing activity, including
our advertising campaigns, direct-to-consumer websites, digital
brand channels and brand homes, while measuring our
performance to improve our insight, creates a virtuous circle
that supports more efficient and effective engagement with our
consumers and better returns on investment.
In the United States, where progress on developing our data and
analytics engine is most advanced, our work has delivered an
improvement in return on investment of over 80% since fiscal 19.4
And it is supporting our ability to tailor our campaigns to the right
consumers in the right digital channels. For example, this year, to
amplify our multi-year sponsorship of the National Football League
(NFL), we created 90 versions of Crown Royal video content, using
data and analytics to identify how we could make our content more
relevant. These videos were deployed to coincide with various
consumer occasions, such as football party preparations. We also
used geolocation data to ensure content was more personalised and
specifically targeted to consumers in cities where we have individual
NFL team sponsorships. Work such as this contributed to a 17%
improvement in return on investment in Crown Royal’s digital media
spend in the first half of fiscal 22.5
4. Sensor: US Spirits portfolio measured media spend fiscal 19 to 31 December 2021
5. Year-on-year comparison to first half of fiscal 21
24
Diageo Annual Report 2022
Diageo Annual Report 2022
25
Our strategic priorities continued
Promote positive drinking
We are determined to change the way the world drinks for the better. We will
promote moderation and continue to reduce the harmful use of alcohol. As we
reach more people with our programmes, we will change attitudes and tackle
binge drinking, underage drinking and drink driving.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on pages 35-38.
Delivering our strategic outcomes
By promoting positive drinking, we deliver against two strategic
outcomes: Credibility and trust and Engaged people.
CT
EP
At Diageo, we’re committed to promoting moderation and addressing
the harmful use of alcohol wherever we live, work, source and sell.
This is why promoting positive drinking is an essential part of our
Performance Ambition.
When we encourage people to ‘drink better, not more’ we also support
our commercial success, as consumers trade up to our higher-quality
drinks. We’re proud of our brands and know the best way to enjoy
them is in moderation.
Alignment with the UN Sustainable Development Goals
Emerging more determined
We know that excessive drinking can cause significant harm to
individuals, their families and society. We share our stakeholders’
concerns about this and are working with others as part of a whole-of-
society approach to address it. It’s why promoting positive drinking is
central to our ‘Society 2030: Spirit of Progress’ plan – and why, as we
emerge from Covid-19, we are innovating, enhancing and increasing
the scale of our programmes.
Committed to reducing harmful use
In 2015, Diageo was a founding member of IARD, the
International Alliance for Responsible Drinking, a not-for-profit
organisation comprising 13 leading beer, wine and spirits
companies. IARD members work together to actively support the
WHO’s target within the Non-Communicable Diseases (NCD)
Global Monitoring Framework of an ‘at least 10% relative
reduction in the harmful use of alcohol’ by 2025.
Progress in fiscal 22
• DRINKiQ has been launched in all our markets, where legally
permissible. It’s now launched in 21Δ markets, 73 countries and
23 languages
• SMASHED Online is now live in 23 countries and SMASHED Live in
15 countries, educating 607,374Δ people on the dangers of
underage drinking
• ‘Wrong Side of the Road’ is now active in 24 countries, reaching
500,415 people this year
• Our brand moderation messages reached 456 million people
Looking ahead to fiscal 23
We will continue to focus on making progress towards our ’Society
2030: Spirit of Progress’ ambition:
• Maintain a focus on championing health literacy and tackling harm
through DRINKiQ in every market where we live, work, source and
sell (where it is legally permissible)
• Scale up our SMASHED partnership, and educate 10 million young
people, parents and teachers on the dangers of underage drinking
• Extend our UNITAR partnership, and promote changes in attitudes
to drink driving, reaching five million people
• Leverage Diageo marketing and innovation to make moderation
the norm – reaching one billion people with dedicated responsible
drinking messaging by 2030.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope.
For further detail and the reporting methodologies, see our ESG Reporting Index.
26
Diageo Annual Report 2022
Making moderation a business imperative
This year we formed our Positive Drinking Council with representatives
from across the business and began refreshing our ambition in this
area. This whole-of-business approach will enable us to clarify the role
of non-alcoholic drinks in promoting moderation; harness digital to
enhance our insights; improve the effectiveness of our messaging; and
define market and brand segmentation for our moderation campaigns.
Alongside existing programmes, this approach will help us to meet our
target of reaching one billion people with dedicated responsible
drinking messaging by 2030.
We want our people to be ambassadors for moderation and are using
the reach and influence of our brands to connect with consumers.
For example, in Great Britain we reached 22 million people with the
Captain Morgan anti drink-drive campaign ‘A mate doesn’t let a mate
drink drive’, developed in collaboration with Think!. In the United
States, Crown Royal, Captain Morgan and Smirnoff had moderation
messaging and game activations throughout the National Football
League (NFL) season.
Both through lockdowns and as markets have been emerging from
Covid-19, we’ve been investing in reaching more consumers with
responsible drinking messaging and are committed to continuing
this work.
Empowering people to make responsible choices
Our enhanced DRINKiQ.com platform is a dedicated responsible
drinking tool that provides facts about alcohol, the effects of drinking
on the body and mind, and the impact of harmful drinking on
individuals and society. It’s one of our most important tools in
promoting positive drinking. DRINKiQ aims to inspire consumers to take
action and empower them to achieve a balanced lifestyle – inviting
them to change their attitudes to alcohol.
Our strategic priorities continued
Promote positive drinking
We are determined to change the way the world drinks for the better. We will
promote moderation and continue to reduce the harmful use of alcohol. As we
reach more people with our programmes, we will change attitudes and tackle
binge drinking, underage drinking and drink driving.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on pages 35-38.
Delivering our strategic outcomes
By promoting positive drinking, we deliver against two strategic
outcomes: Credibility and trust and Engaged people.
CT
EP
Emerging more determined
We know that excessive drinking can cause significant harm to
individuals, their families and society. We share our stakeholders’
concerns about this and are working with others as part of a whole-of-
society approach to address it. It’s why promoting positive drinking is
central to our ‘Society 2030: Spirit of Progress’ plan – and why, as we
emerge from Covid-19, we are innovating, enhancing and increasing
At Diageo, we’re committed to promoting moderation and addressing
the scale of our programmes.
the harmful use of alcohol wherever we live, work, source and sell.
This is why promoting positive drinking is an essential part of our
Performance Ambition.
When we encourage people to ‘drink better, not more’ we also support
our commercial success, as consumers trade up to our higher-quality
drinks. We’re proud of our brands and know the best way to enjoy
them is in moderation.
Alignment with the UN Sustainable Development Goals
Committed to reducing harmful use
In 2015, Diageo was a founding member of IARD, the
International Alliance for Responsible Drinking, a not-for-profit
organisation comprising 13 leading beer, wine and spirits
companies. IARD members work together to actively support the
WHO’s target within the Non-Communicable Diseases (NCD)
Global Monitoring Framework of an ‘at least 10% relative
reduction in the harmful use of alcohol’ by 2025.
Making moderation a business imperative
This year we formed our Positive Drinking Council with representatives
from across the business and began refreshing our ambition in this
Progress in fiscal 22
• DRINKiQ has been launched in all our markets, where legally
area. This whole-of-business approach will enable us to clarify the role
permissible. It’s now launched in 21Δ markets, 73 countries and
of non-alcoholic drinks in promoting moderation; harness digital to
23 languages
enhance our insights; improve the effectiveness of our messaging; and
• SMASHED Online is now live in 23 countries and SMASHED Live in
define market and brand segmentation for our moderation campaigns.
15 countries, educating 607,374Δ people on the dangers of
Alongside existing programmes, this approach will help us to meet our
target of reaching one billion people with dedicated responsible
• ‘Wrong Side of the Road’ is now active in 24 countries, reaching
drinking messaging by 2030.
underage drinking
500,415 people this year
• Our brand moderation messages reached 456 million people
Looking ahead to fiscal 23
We will continue to focus on making progress towards our ’Society
2030: Spirit of Progress’ ambition:
We want our people to be ambassadors for moderation and are using
the reach and influence of our brands to connect with consumers.
For example, in Great Britain we reached 22 million people with the
Captain Morgan anti drink-drive campaign ‘A mate doesn’t let a mate
drink drive’, developed in collaboration with Think!. In the United
States, Crown Royal, Captain Morgan and Smirnoff had moderation
• Maintain a focus on championing health literacy and tackling harm
messaging and game activations throughout the National Football
through DRINKiQ in every market where we live, work, source and
League (NFL) season.
sell (where it is legally permissible)
• Scale up our SMASHED partnership, and educate 10 million young
people, parents and teachers on the dangers of underage drinking
• Extend our UNITAR partnership, and promote changes in attitudes
to drink driving, reaching five million people
• Leverage Diageo marketing and innovation to make moderation
the norm – reaching one billion people with dedicated responsible
drinking messaging by 2030.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope.
For further detail and the reporting methodologies, see our ESG Reporting Index.
Both through lockdowns and as markets have been emerging from
Covid-19, we’ve been investing in reaching more consumers with
responsible drinking messaging and are committed to continuing
this work.
Empowering people to make responsible choices
Our enhanced DRINKiQ.com platform is a dedicated responsible
drinking tool that provides facts about alcohol, the effects of drinking
on the body and mind, and the impact of harmful drinking on
individuals and society. It’s one of our most important tools in
promoting positive drinking. DRINKiQ aims to inspire consumers to take
action and empower them to achieve a balanced lifestyle – inviting
them to change their attitudes to alcohol.
We designed the platform to complement resources offered by
governments, charities and independent bodies. For example, our
drinking self-assessment tool – which aligns with the WHO’s Alcohol
Use Disorders Identification Test (AUDIT) tool – helps determine if
someone is at risk of problem drinking.
We’ve now reached our 2030 goal to launch DRINKiQ in every market
in which we live, work, source and sell. The DRINKiQ platform, which
champions health literacy and tackles harm, has been launched in 21Δ
markets and is available in 73 countries and 23 languages. This year,
our campaigns around the world have engaged users with DRINKiQ.
In South Korea, for example, a festive campaign in 2021 reached more
than a million users in four weeks.
Tackling underage drinking
For many years, we’ve run ambitious campaigns and programmes to
tackle underage drinking – because it is never acceptable for
somebody who is underage to consume alcohol.
SMASHED, an award-winning alcohol education programme,
developed by Collingwood Learning and sponsored by Diageo, plays
a key role in sharing this message – and measures changed attitudes
in young people who participate. SMASHED started as a live theatre
production. As part of a long-term goal to reach a greater number of
students, we’re pivoting to digital, developing SMASHED Online.
This year we further extended the global scale of the programme.
Despite ongoing challenges, including Covid-19 and adapting the
programme for local governing bodies, we launched SMASHED Live
in 15 countries and SMASHED Online in 18 new countries. In total,
Diageo-supported education programmes educated 607,374Δ people
on the dangers of underage drinking – 491,128Δ of those confirmed a
changed attitude on the subject after taking part.
We remain committed to educating 10 million people on the dangers
of underage drinking by 2030; SMASHED has educated more than
1.8 million people since it launched in 2018.
Preventing drink driving by changing attitudes
Attitude change is also crucial to preventing drink driving. For decades,
we’ve been addressing this issue through a range of interventions,
including partnerships with police, local authorities and other agencies
that support the enforcement of drink-drive laws.
Last year we launched ‘Wrong Side of the Road’ (WSOTR), which is
now live in 24 countries. Developed in partnership with the United
Nations Institute for Training and Research (UNITAR), it’s our digital
learning experience to help as many people as possible around the
world understand the consequences of drink driving. In China, WSOTR
launched alongside a national road traffic safety campaign, allowing
us to reach 26,000 people in its first month. This year in India we
reached 107,000 people within seven months, using a mix of online
and offline learning in a classroom setting. We continue to look for
ways to make the digital experience more effective, and scale the
programme to engage more people with our positive drinking
message post-pandemic.
We have partnered with UNITAR since 2016 to develop ways to
prevent drink driving. Together we continue to support the second
UN Decade of Action for Road Safety. Our own ‘Society 2030: Spirit
of Progress’ plan commits us to changing the attitudes of five million
people towards drink driving by 2030.
Pivoting to digital at a time of global challenge
Due to Covid-19, promoting positive drinking remains
challenging, particularly for programmes that rely on in-person
events. By using online solutions in many markets, we continue
to find new ways to reach audiences and deliver our most
important messages. Expanding our digital approach has
given us more data insights, which we are using to increase
engagement and measure impact. It’s helping us to enhance
our industry-leading programmes and change more attitudes
towards the harmful use of alcohol.
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Advocating improved laws and industry standards
As a minimum, we aim to comply with all laws and regulations where
we operate. We advocate effective new regulation based on evidence,
including blood-alcohol volume driving limits, responsible digital
marketing and legal-purchase-age laws, equal for all categories of
alcohol in countries where these don’t exist.
We support IARD’s commitments on digital marketing and commercial
practices, and its package of measures to combat underage drinking,
including its new Influencer Guiding Principles – the first global
standards to ensure responsible marketing of alcohol by social
influencers. We’ve also committed to including an age-restriction
symbol or equivalent words on all our alcohol brand products, in all
markets, by 2024.
We are also part of a global alliance between IARD and prominent
online retailers and e-commerce and delivery platforms, developing
industry standards to promote moderation and address the risk of
alcohol being sold to people who are underage or intoxicated.
Responsible marketing
Our Diageo Marketing Code (DMC) and Digital Code set mandatory
minimum standards for responsible marketing. We review them every
two years. At the heart of the DMC is our commitment to ensuring all
our activities depict and encourage only responsible and moderate
drinking, and never target those who are underage.
We’ve also taken a leadership role in shaping safer online
environments through our work with the World Federation of
Advertisers’ Global Alliance for Responsible Media (GARM) – a
cross-industry programme, steadily progressing better and more
consistent standards, controls, measurement and verification of
harmful digital content. This year GARM launched its first report
tracking the brand safety performance of digital platforms and
setting a benchmark for progress.
Advertising complaints upheld by key industry bodies that
report publicly
Across some of our markets, advertising monitoring and industry
bodies publicly report breaches of self-regulatory alcohol
marketing codes.
This year one complaint was upheld against Diageo, by the ABAC
scheme in Australia. It was a ‘no-fault breach’ decision issued on
30 May 2022 against UDL, a ready-to-drink brand. A no-fault finding
is defined as an instance where an alcohol marketer has acted
properly and diligently in seeking to comply with its ABAC obligations,
but a failure has occurred that was outside the reasonable control of
the marketer or their advertising agency. In this instance, an agency
placed a billboard at a bus stop too close to a school, because of an
error defining the boundaries of the school’s premises in a location
database. We accepted that the placement rule had been breached,
and asked for a no-fault finding. We acted immediately to remove
the advertising.
Country
Body
Australia ABAC scheme
Ireland
Advertising Standards
Authority for Ireland (ASAI)
Advertising Standards
Authority
Portman Group
Distilled Spirits Council of the
United States (DISCUS)
United
Kingdom
United
States
Industry
complaints
upheld
48
Complaints
about Diageo
brands upheld
1
Brand
UDL
0
7
8
1
0
0
0
0
26
Diageo Annual Report 2022
Diageo Annual Report 2022
27
Our strategic priorities continued
Champion inclusion and diversity
We believe that everybody should be able to thrive in an environment that
values their contribution and celebrates what makes them unique. Across
Diageo, we champion inclusion and diversity, from how we attract, recruit
and develop our teams, to representation in our supply chain, and the ways
we portray the richness of society across our brands.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on pages 35-36
Delivering our strategic outcomes
By championing inclusion and diversity, we deliver against three
strategic outcomes: Consistent value creation, Credibility and trust
and Engaged people.
CVC
CT
EP
We are committed to creating the most inclusive and diverse culture,
as well as shaping market-leading policies and practices. This helps us
attract the best and most diverse talent – driving both innovation and
commercial performance. Beyond our workplace, through our
partnerships, creative skills and media spend, we help educate and
make society more equitable. Because championing inclusion and
diversity is central to our purpose of ‘Celebrating life, every day,
everywhere’ – and it is simply the right thing to do.
Alignment with the UN Sustainable Development Goals
Progress in fiscal 22
• Increased female representation across leadership, including our
Executive Committee, to 44%Δ and the ethnic diversity of our
leadership population to 41%Δ
• Announced ambitious goals to increase our supplier diversity spend
with diverse-owned and disadvantaged businesses, to 10% by 2025
and 15% by 2030
• Improved our Inclusion & Diversity Index in our employee survey by
two percentage points year-on-year, to 84% ‘positive sentiment’
• Updated our Learning for Life programme to tackle barriers to
ethnic minorities working in hospitality
• Launched ‘Domestic and Family Abuse’ guidelines to support
our people
• Leveraged our Employee Resource Groups (ERGs),
collaborating with our marketing teams to create highly
relevant and progressive advertising
Looking ahead to fiscal 23
We have set a range of ambitious goals to help drive our performance in:
championing gender and ethnic diversity; improving employability and
livelihoods through specialist training; supporting progressive voices and
diverse-owned and disadvantaged businesses, through our spend; and
ensuring our community programmes benefit everyone equally.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is
described on pages 35-36.
Statements on representation should be considered an ambition for Diageo, not a target
*
1. This data is calculated as an average across the four quarters of fiscal 22
28
Diageo Annual Report 2022
Championing our people
Every individual who works for, or with, Diageo should feel they belong
and know they can thrive. To achieve that, we embrace diversity in
every possible sense, including gender, ethnicity, ability, age, sexual
orientation, neurodiversity, social class, education, experience and
ways of thinking.
Globally, we put significant focus on two areas: empowering women
to flourish in all roles, and increasing the representation of those from
ethnically diverse backgrounds. It is both the right thing to do and a
critical driver of our ‘Society 2030: Spirit of Progress’ ambitions, which is
why we’ve backed up our ambition by directly linking our Long-Term
Incentive Plan (LTIP) awards to delivering diversity in our leadership –
see page 130.
Women in leadership: progress continues
Our goal is to see women represent 50%* of our leadership group
by 2030. This year, representation reached 44%1∆, from 42% in 2021.
We’re also proud to have 64% female Board representation, and be
recognised for our gender equality work by the FTSE Women Leaders
Review, Bloomberg Equality Index, Equileap and others. We continue
to work towards our goals, with a deep commitment to supporting
gender equality through representation, policy development
and transparency.
A focus on ethnic diversity
Progress requires ambition. Our Ethnic Diversity Framework supports
markets in defining multi-year plans covering talent representation and
development, supplier ethnic diversity, inclusive marketing – and where
local law allows, we invite employees to share their ethnicity. In these
markets, 82% of our global workforce and 96% of our leadership
population has confidentially disclosed their ethnic background. By
2030, we’re aiming to have increased representation of Diageo leaders
from ethnically diverse backgrounds to 45%*. Today, 45% of our
Board and 41%1∆ of our leadership population, including our Executive
Committee, is ethnically diverse.
Creating an inclusive culture through progressive
policies and our Employee Resource Groups
Our progressive policies help us foster an inclusive environment that
supports every employee. This year, we introduced ‘Domestic and
Family Abuse’ guidelines, while continuing to embed our ‘Thriving
through Menopause’ and ‘Gender Expression & Identity’ guidelines.
Supporting people affected by abuse
In November 2021, we introduced Domestic and Family Abuse
guidelines, created in partnership with CARE International UK.
These outline our zero-tolerance approach to all forms of domestic
and family abuse, and provide guidance to employees and line
managers on where to go for expert and confidential support.
Our strategic priorities continued
Champion inclusion and diversity
We believe that everybody should be able to thrive in an environment that
values their contribution and celebrates what makes them unique. Across
Diageo, we champion inclusion and diversity, from how we attract, recruit
and develop our teams, to representation in our supply chain, and the ways
we portray the richness of society across our brands.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on pages 35-36
Delivering our strategic outcomes
Championing our people
By championing inclusion and diversity, we deliver against three
Every individual who works for, or with, Diageo should feel they belong
strategic outcomes: Consistent value creation, Credibility and trust
and know they can thrive. To achieve that, we embrace diversity in
and Engaged people.
CVC
CT
EP
We are committed to creating the most inclusive and diverse culture,
as well as shaping market-leading policies and practices. This helps us
attract the best and most diverse talent – driving both innovation and
commercial performance. Beyond our workplace, through our
partnerships, creative skills and media spend, we help educate and
make society more equitable. Because championing inclusion and
diversity is central to our purpose of ‘Celebrating life, every day,
everywhere’ – and it is simply the right thing to do.
Alignment with the UN Sustainable Development Goals
every possible sense, including gender, ethnicity, ability, age, sexual
orientation, neurodiversity, social class, education, experience and
ways of thinking.
Globally, we put significant focus on two areas: empowering women
to flourish in all roles, and increasing the representation of those from
ethnically diverse backgrounds. It is both the right thing to do and a
critical driver of our ‘Society 2030: Spirit of Progress’ ambitions, which is
why we’ve backed up our ambition by directly linking our Long-Term
Incentive Plan (LTIP) awards to delivering diversity in our leadership –
see page 130.
Women in leadership: progress continues
Our goal is to see women represent 50%* of our leadership group
by 2030. This year, representation reached 44%1∆, from 42% in 2021.
We’re also proud to have 64% female Board representation, and be
recognised for our gender equality work by the FTSE Women Leaders
Review, Bloomberg Equality Index, Equileap and others. We continue
to work towards our goals, with a deep commitment to supporting
gender equality through representation, policy development
and transparency.
Progress in fiscal 22
• Increased female representation across leadership, including our
Executive Committee, to 44%Δ and the ethnic diversity of our
A focus on ethnic diversity
leadership population to 41%Δ
Progress requires ambition. Our Ethnic Diversity Framework supports
• Announced ambitious goals to increase our supplier diversity spend
markets in defining multi-year plans covering talent representation and
with diverse-owned and disadvantaged businesses, to 10% by 2025
development, supplier ethnic diversity, inclusive marketing – and where
and 15% by 2030
local law allows, we invite employees to share their ethnicity. In these
• Improved our Inclusion & Diversity Index in our employee survey by
markets, 82% of our global workforce and 96% of our leadership
two percentage points year-on-year, to 84% ‘positive sentiment’
population has confidentially disclosed their ethnic background. By
• Updated our Learning for Life programme to tackle barriers to
2030, we’re aiming to have increased representation of Diageo leaders
ethnic minorities working in hospitality
• Launched ‘Domestic and Family Abuse’ guidelines to support
from ethnically diverse backgrounds to 45%*. Today, 45% of our
Board and 41%1∆ of our leadership population, including our Executive
our people
• Leveraged our Employee Resource Groups (ERGs),
collaborating with our marketing teams to create highly
relevant and progressive advertising
Looking ahead to fiscal 23
We have set a range of ambitious goals to help drive our performance in:
championing gender and ethnic diversity; improving employability and
livelihoods through specialist training; supporting progressive voices and
diverse-owned and disadvantaged businesses, through our spend; and
ensuring our community programmes benefit everyone equally.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is
described on pages 35-36.
*
Statements on representation should be considered an ambition for Diageo, not a target
1. This data is calculated as an average across the four quarters of fiscal 22
Committee, is ethnically diverse.
Creating an inclusive culture through progressive
policies and our Employee Resource Groups
Our progressive policies help us foster an inclusive environment that
supports every employee. This year, we introduced ‘Domestic and
Family Abuse’ guidelines, while continuing to embed our ‘Thriving
through Menopause’ and ‘Gender Expression & Identity’ guidelines.
Supporting people affected by abuse
In November 2021, we introduced Domestic and Family Abuse
guidelines, created in partnership with CARE International UK.
These outline our zero-tolerance approach to all forms of domestic
and family abuse, and provide guidance to employees and line
managers on where to go for expert and confidential support.
28
Diageo Annual Report 2022
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Our network of Employee Resource Groups gives our people the
opportunity to support one another, while helping leaders better
understand the concerns of diverse communities. Our active ERGs
include: AHEAD (African Heritage Employees at Diageo); Conectados
(Diageo employees championing Latin culture); PAN (Pan Asian Network),
in the United States; We Are All Able and REACH (Race, Ethnicity and
Cultural Heritage), in Europe; and our international Spirited Women
and Rainbow Networks. Highlights from this year include:
• Our partnership with Queer Britain in London, the UK’s first LGBTQ+
museum, celebrating 50 years of LGBTQ+ Pride in the UK, allowing
meaningful connections to both past and present
• Lighting up purple for International Day of People with Disabilities at
our sites across the world, showing our commitment to supporting
those with a disability
• Celebrating Black Heritage Month (US) and Race Equity Week
(UK), with thought-provoking discussion, encouraging us to
challenge our way of thinking and create meaningful action
• #MyNameIs global campaign as part of our annual inclusivity
week, designed to educate others that the correct pronunciation
of our names is central to championing inclusion
• 85 Diageo sites taking part in our annual PRIDE flag-raising event,
which saw the Progress flag flown, representing marginalised
LGBTQIA+ transgender and ethnically diverse communities
Changing society through our reach and influence
As one of the world’s largest advertisers, we’re committed to an
advertising and media environment where, from script to screen,
everyone sees themselves represented.
We invest in progressive voices, measuring and increasing our
percentage spend. This is unlocking opportunities in front of the
camera, behind the camera and in who owns the camera.
The Baileys ‘Witches’ campaign for Halloween was a celebration of
how enjoying treats spans generations, ethnicities and sexualities,
featuring three of the UK’s biggest drag queens. The campaign was
created in partnership with our employee Rainbow Network and
consultancy, INvolve, to ensure it was a true representation of drag,
within the context of the wider LGBTQ+ community. Our Guinness
‘Black Shines Brightest’ campaign was created for and by African
markets, to bring together passionate and creative individuals and
celebrate the cultural diversity of Africa.
Celebrating and supporting employees with disabilities
Across our manufacturing sites, our Youth4Jobs partnership in
India has seen us hire more than 62 people with disabilities, and
our award-winning ‘We Are All Able’ internship programme at
our Shieldhall packaging site is now in its third year. In Kenya,
we have partnered with Sightsavers to promote the inclusion of
farmers with disabilities, working with more than 350 disabled
farmers (of which 51% are female) in the production of our
Senator Keg beer.
Thriving through menopause
By 2025, there will be over one billion women experiencing
menopause in the world – and this subject should not be taboo.
In 2021, we introduced our ‘Thriving Through Menopause’
guidelines, to raise awareness and understanding of menopause
throughout our business. In 2022, we worked with our partner,
Balance, to launch an employee app, that offers medical
provision, advice and diagnosis to employees worldwide.
Fostering an inclusive culture
Improving our Inclusion and Diversity Index to 84% (+2ppt vs
2021), as reported by our annual employee survey, keeps us
ahead of global benchmarks – and highlights that our
employees see this as a key driver of both our culture and
commercial performance.
∆ Within PwC’s limited assurance; see page 213 for further details
Our commitment to supplier diversity
A value chain built on inclusion and diversity can create employment
opportunities, economic advancement and greater representation in
marginalised communities. This is why we have chosen to recognise
supplier diversity as a business priority, committing to spend 10% with
diverse-owned and disadvantaged suppliers and agencies by 2025,
and 15% by 2030.
In the last year, we have worked with our markets, advocacy
organisations and peer companies to understand which groups were
under-represented at a local level – and to align on what defines
‘supplier diversity’. We surveyed 1,500 suppliers, covering 80% of our
global spend, establishing the baseline of diversity in our existing value
chain. This year, we spent £429 million with 369 diverse-owned and
disadvantaged businesses, approximately 4.8% of global spend.
Helping communities thrive where we live, work,
source and sell
We continue to promote sustainable growth through inclusive
programmes that provide equal access to resources, skills and
employment opportunities – including in business and hospitality
training, safe water, sanitation and hygiene, and support for
smallholder farmers. Each programme puts measures in place that
reduce barriers to underrepresented groups who need to access
these benefits.
Equal opportunities for women
We make sure at least 50% of people trained by our community
programmes are women, and that women’s needs are met at all
stages of design, implementation and evaluation. We do this
with CARE International UK, a leading NGO in gender equality.
For example, in 2022, our Learning for Life programme in India
reached 658 female beneficiaries (59% of programme
attendees), through dedicated gender focussed engagement
and education.
This year, we reached 22,230 people with our business and hospitality
skills programmes, 64% of whom were female. We also expanded
our approach to tackling barriers to ethnic minorities in hospitality,
including lack of access to essential education, skills and infrastructure;
lack of safe, inclusive working spaces free from harassment and abuse;
and unfair wages, informal contracts and inappropriate working hours.
We’ve updated our Learning for Life (L4L) inclusive-by-design
principles, and will be partnering with the Diageo Bar Academy, which
itself has delivered 190,383 training sessions to help create an inclusive
and thriving hospitality industry that works for all.
This year, we invested a total of £22 million in community initiatives,
equivalent to 0.5% of operating profit. See our ESG Reporting Index
for more details of our community investments.
Gender representation of our leadership1
Role
Leadership population2
Men
312
%
56%
Women
244
%
44%∆
Total
5563
Ethnic representation of our leadership1,4
Role
Leadership
population2
Ethnically
diverse
Non-
ethnically
diverse
%
Decline
to self-
identify
%
Not
Disclosed
%
% Total
231
41%∆
291 52%
14 3%
21 4% 557
1. This data is calculated as an average across the four quarters of fiscal 22
2. Leadership population encompasses Executive Committee and senior managers
3. One person has opted not to disclose their gender; they cannot be positively attributed
to either group and therefore are not included
4. Please refer to our reporting boundaries and methodologies of our ESG Reporting
Index, for more information on how data has been compiled, including standards and
assumptions used
Diageo Annual Report 2022
29
Our strategic priorities continued
Pioneer grain-to-glass sustainability
The climate is in crisis. We must increase our efforts to preserve water for
life, accelerate to a low-carbon world and become sustainable by design
– helping to create a better future for communities everywhere.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on
pages 35-38, with more detail about our performance in our ESG Reporting Index 2022.
Delivering our strategic outcomes
By pioneering grain-to-glass sustainability, we deliver against three
strategic outcomes: Consistent value creation, Credibility and trust
and Engaged people.
CVC
CT
EP
The urgency of the climate crisis requires us to do more, and quickly.
Water stress, biodiversity loss, natural disasters, inequality and poverty
threaten the environment and the prosperity of communities. The
period to 2030 will be critical and difficult – as we manage both our
impact on the planet, and mitigate and adapt to the effects of a
changing climate.
We are acting. At COP26 we became a founding signatory of the
Glasgow Declaration for Fair Water Footprints for climate-resilient,
inclusive and sustainable development – and are part of the COP26
Business Leaders Group, stimulating business action to help accelerate
delivery of the Glasgow Climate Pact ahead of COP27. We are vocal
supporters of two key UN-backed global campaigns: Race to Zero and
Race to Resilience. And we continue to pioneer innovative approaches
from grain to glass, partnering with others to make a difference –
because we know our long-term commercial performance and
effective stewardship of the environment go hand in hand. Managing
the risks and opportunities of a changing climate will be critical, and
we report on these in line with the recommendations of the Task Force
on Climate-related Financial Disclosures on pages 47-56.
Alignment with the UN Sustainable Development Goals
Progress in fiscal 22
• Achieved 3.7%Δ water efficiency improvement and generated the
annual capacity to replenish 1,058,822m3Δ of water
• Reduced carbon emissions from our direct operations by 5.3%Δ
despite a year-on-year increase of 9.6% in packaged volume and
6.7% in distilled volume
• The Science Based Targets initiative validated our GHG targets as
meeting the criteria for the 1.5°C warming pathway
• Launched our first regenerative agriculture programme
with Guinness
• Launched our second round of Diageo Sustainable Solutions
innovation challenges, this time focussed on enhancing the
sustainability of our packaging
Looking ahead to fiscal 23
In the coming year we will continue to focus on the targets we have set
to drive our performance in preserving water for life, accelerating to a
low-carbon world and becoming sustainable by design. We report
against all our targets on page 35-38.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For
further detail and the reporting methodologies, see our ESG Reporting Index.
30
Diageo Annual Report 2022
Acting now, acting together
We work with our whole value chain to look after the people and
resources that contribute to our success. We’re engaging with suppliers
to identify common challenges and accelerate our journey to net zero
together. As we grow, reducing emissions and the consumption of raw
materials are among our biggest challenges. It’s why we take an
integrated approach to sustainability – making improvements and
launching initiatives that support climate, water and biodiversity.
‘Society 2030: Spirit of Progress’ ambition
By 2030 we expect to have invested around £1 billion of capital
expenditure on improving our environmental performance. This
investment will support our drive to be global champions for water
stewardship and a strong contributor to a low-carbon world – through
using renewable energy, scaling circular solutions and implementing
regenerative agriculture approaches. These investments will help us to
be more efficient, reduce our resource consumption, develop
innovative solutions and ensure a more resilient supply chain.
Water and the climate crisis
Water is a critical resource, as well as our most important ingredient.
Preserving it is crucial to our communities and business – and remains
a strategic priority for us, especially in water-stressed areas.
Our updated water stewardship strategy ‘Preserve Water for Life’
outlines how we’ll manage water in our supply chain, operations
and communities, as well as advocate collective action to improve water
outcomes. Our work on water efficiency continues, particularly in Africa,
with another two water recovery plants in Nigeria – one recently
commissioned and the other being completed. As part of our water
replenishment programme, this year we launched our first project in
Turkey – conserving water through efficient drip irrigation for growing
grapes, a core raw material of Yenì Raki. This will improve the climate
resiliency of farmers while reducing our Scope 3 carbon emissions.
We know there is a connection between climate, water, people and
regenerative agriculture. We continue to prioritise climate adaptation
in the ‘Global South’ to support vulnerable local communities and
strengthen the resilience of our supply chain, by addressing our most
important climate risks. Our analysis shows we must do more on
indirect water use, especially in our agricultural supply chains in
water-stressed areas, which now include parts of Europe and Latin
America (see map on page 49). We are engaging in enhanced water
efficiency and replenishment programmes in these areas. More
investment in our regenerative agriculture programme is another
key element of our integrated approach to climate adaptation.
Our approach supports farmers, improves water-use efficiency in
agricultural and production operations, replenishes water in water-
stressed catchments and provides clean water to our communities. In
India, Mexico and across Africa, we continue to take collective action
through supporting better water stewardship and increased water security.
Water in communities
A key part of our integrated approach is to provide access to clean
water, sanitation and hygiene (WASH) in communities near our sites
and in the water-stressed areas that supply our raw materials.
Our strategic priorities continued
Pioneer grain-to-glass sustainability
The climate is in crisis. We must increase our efforts to preserve water for
life, accelerate to a low-carbon world and become sustainable by design
– helping to create a better future for communities everywhere.
Performance against all our ‘Society 2030: Spirit of Progress’ goals is described on
pages 35-38, with more detail about our performance in our ESG Reporting Index 2022.
Delivering our strategic outcomes
Acting now, acting together
By pioneering grain-to-glass sustainability, we deliver against three
We work with our whole value chain to look after the people and
strategic outcomes: Consistent value creation, Credibility and trust
resources that contribute to our success. We’re engaging with suppliers
and Engaged people.
CVC
CT
EP
The urgency of the climate crisis requires us to do more, and quickly.
Water stress, biodiversity loss, natural disasters, inequality and poverty
threaten the environment and the prosperity of communities. The
period to 2030 will be critical and difficult – as we manage both our
impact on the planet, and mitigate and adapt to the effects of a
changing climate.
We are acting. At COP26 we became a founding signatory of the
Glasgow Declaration for Fair Water Footprints for climate-resilient,
inclusive and sustainable development – and are part of the COP26
Business Leaders Group, stimulating business action to help accelerate
delivery of the Glasgow Climate Pact ahead of COP27. We are vocal
supporters of two key UN-backed global campaigns: Race to Zero and
Race to Resilience. And we continue to pioneer innovative approaches
from grain to glass, partnering with others to make a difference –
because we know our long-term commercial performance and
to identify common challenges and accelerate our journey to net zero
together. As we grow, reducing emissions and the consumption of raw
materials are among our biggest challenges. It’s why we take an
integrated approach to sustainability – making improvements and
launching initiatives that support climate, water and biodiversity.
‘Society 2030: Spirit of Progress’ ambition
By 2030 we expect to have invested around £1 billion of capital
expenditure on improving our environmental performance. This
investment will support our drive to be global champions for water
stewardship and a strong contributor to a low-carbon world – through
using renewable energy, scaling circular solutions and implementing
regenerative agriculture approaches. These investments will help us to
be more efficient, reduce our resource consumption, develop
innovative solutions and ensure a more resilient supply chain.
Water and the climate crisis
Water is a critical resource, as well as our most important ingredient.
Preserving it is crucial to our communities and business – and remains
a strategic priority for us, especially in water-stressed areas.
effective stewardship of the environment go hand in hand. Managing
Our updated water stewardship strategy ‘Preserve Water for Life’
the risks and opportunities of a changing climate will be critical, and
outlines how we’ll manage water in our supply chain, operations
we report on these in line with the recommendations of the Task Force
and communities, as well as advocate collective action to improve water
on Climate-related Financial Disclosures on pages 47-56.
outcomes. Our work on water efficiency continues, particularly in Africa,
Alignment with the UN Sustainable Development Goals
with another two water recovery plants in Nigeria – one recently
commissioned and the other being completed. As part of our water
replenishment programme, this year we launched our first project in
Turkey – conserving water through efficient drip irrigation for growing
grapes, a core raw material of Yenì Raki. This will improve the climate
resiliency of farmers while reducing our Scope 3 carbon emissions.
We know there is a connection between climate, water, people and
Progress in fiscal 22
• Achieved 3.7%Δ water efficiency improvement and generated the
regenerative agriculture. We continue to prioritise climate adaptation
annual capacity to replenish 1,058,822m3Δ of water
in the ‘Global South’ to support vulnerable local communities and
• Reduced carbon emissions from our direct operations by 5.3%Δ
strengthen the resilience of our supply chain, by addressing our most
despite a year-on-year increase of 9.6% in packaged volume and
important climate risks. Our analysis shows we must do more on
6.7% in distilled volume
indirect water use, especially in our agricultural supply chains in
• The Science Based Targets initiative validated our GHG targets as
water-stressed areas, which now include parts of Europe and Latin
meeting the criteria for the 1.5°C warming pathway
• Launched our first regenerative agriculture programme
with Guinness
• Launched our second round of Diageo Sustainable Solutions
innovation challenges, this time focussed on enhancing the
sustainability of our packaging
Looking ahead to fiscal 23
In the coming year we will continue to focus on the targets we have set
to drive our performance in preserving water for life, accelerating to a
low-carbon world and becoming sustainable by design. We report
against all our targets on page 35-38.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For
further detail and the reporting methodologies, see our ESG Reporting Index.
30
Diageo Annual Report 2022
America (see map on page 49). We are engaging in enhanced water
efficiency and replenishment programmes in these areas. More
investment in our regenerative agriculture programme is another
key element of our integrated approach to climate adaptation.
Our approach supports farmers, improves water-use efficiency in
agricultural and production operations, replenishes water in water-
stressed catchments and provides clean water to our communities. In
India, Mexico and across Africa, we continue to take collective action
through supporting better water stewardship and increased water security.
Water in communities
A key part of our integrated approach is to provide access to clean
water, sanitation and hygiene (WASH) in communities near our sites
and in the water-stressed areas that supply our raw materials.
Our strategy contributes to SDG 6 (clean water and sanitation),
including replenishing the water we use in our operations. This year
we launched our first WASH programme in Brazil. We reached 135,800
people with safe water and sanitation across Nigeria, Kenya, Tanzania,
South Africa, Uganda, India and Ghana. In fiscal 23 we’ll also develop
ways to ensure greater female representation in all WASH programmes.
We recognise the importance of returning water to the environment
safely and, at a minimum, in compliance with regulations. As water
management relates to local ecosystems, we’ve adopted a context-
based approach to managing wastewater informed by robust
scientific assessment.
Leading and collaborating
Advocacy and collaboration are essential to our ambitions for water
stewardship. This year, as part of our collective action programme, we
continued to support the Upper Tana Water Fund in the catchment of
our Tusker brewery in Nairobi and the Charco Bendito Water Action
Hub in the Santiago Lerma basin in Mexico. We also initiated a new
collective action collaboration in the Ganges basin near our Alwar
distillery in Rajasthan, and continued to assess collective action
opportunities as part of our engagement in the Water Resilience Coalition.
Twelve of our distilleries in Scotland have achieved formal water
stewardship certification from the Alliance for Water Stewardship (AWS).
Accelerating to a low-carbon world
We started our decarbonisation journey in 2008, and we aim to reach
net zero across our direct operations by 2030, using 100% renewable
energy everywhere we operate. This year we achieved a further 5.3%Δ
reduction in emissions from our direct operations. We have developed
decarbonisation roadmaps to reduce direct emissions from our existing
sites and are investing in new carbon-neutral sites, such as our distillery
for Crown Royal in Ontario, Canada and a new malt whisky distillery in
China, which will operate using 100% renewable energy. We’re also
working hard to achieve net zero across our supply chain (Scope 3) by
2050 or sooner, with the aim of achieving a 50% reduction by 2030.
We are analysing the data and reporting methodology for our Scope 3
emissions – including those from recent acquisitions. So far this has
expanded the number of categories we report and has resulted in a
significant increase in our reported Scope 3 emissions this year
compared to our previous baseline (see page 37). Our Scope 3
footprint is largely based on currently available, standard emissions
factors. As we work with our suppliers to gain more granular insights
into our supply chain, we’ll further refine our footprint.
We can’t achieve net zero alone. In pursuit of our Scope 3 target, for
example, we plan to partner with our suppliers on renewable energy
solutions, circular-designed products, increasing the recycled content
of packaging and regenerative agriculture.
Our strong commercial growth has meant that we’ve increased our
production volumes across many of our markets. This has made it even
more challenging to meet our absolute emissions reduction targets –
and meant that we’ve had to continue to use renewable energy
certificates for direct energy, to supplement our decarbonisation
projects. We’ve reviewed our decarbonisation roadmaps, looking at
when projects will deliver emission reductions – and then adjusted our
interim decarbonisation trajectory. We’ve also defined our key projects
for the next three years, setting us up to meaningfully accelerate
decarbonisation in the second half of the decade.
A move to biomass
Tusker and Kisumu breweries in Kenya are in the final stages of
commissioning new biomass facilities, using sustainable local
by-products to produce renewable energy. Our biomass
investment in East Africa, and other projects like it, are critical
enablers in reducing GHG emissions and using 100% renewable
energy across all our direct operations by 2030.
Being sustainable by design
With the climate in crisis, we’re committed to reducing our footprint by
reducing packaging and increasing recycled content. We’re focussed
on innovations that improve circularity and reduce waste – for our
business and the planet.
Given we purchase much of our packaging materials, effective
partnerships will be critical to achieving our ambitions. One way we’re
doing this is through Diageo Sustainable Solutions, where we partner
with innovators, customers, suppliers and researchers to identify and
accelerate breakthrough technological solutions that address our
biggest sustainability challenges, such as how to make packaging
sustainable by design. We’re also improving internal awareness of
the impact of different material choices through our newly defined
Sustainable Packaging Strategy and internal guidance documents,
which will build knowledge and capacity across the business.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Reducing our footprint
We continue to innovate to meet our commitments:
thinking differently about waste, and using the right amount
of the right material to protect our product, with end-of-life
considerations in mind. For example, in April 2022 we
announced the phased removal of cardboard gift boxes
from our premium scotch portfolio.
Collaborating with suppliers and farmers
With a supply chain that connects us to communities around the world,
we can have a positive social and environmental impact by creating
economic opportunity, promoting human rights and improving
agricultural and environmental practices.
Our Partnering with Suppliers standard sets minimum social, ethical
and environmental expectations for our suppliers. We also work
through AIM-PROGRESS, a forum of leading consumer goods
companies, and the not-for-profit organisation SEDEX. Our approach is
described in more detail on our website. This year we have started to
develop carbon reduction toolkits for our smallholder farmers.
Our Sustainable Agriculture Guidelines (SAG) set out principles we
expect suppliers of agricultural raw materials to adopt to improve
on-farm sustainability. We work with our suppliers and farmers across
our supply chains to implement sustainable and regenerative practices,
and to increase our procured volumes of third-party verified and
sustainably sourced raw materials. Raw materials are considered
sustainably sourced if they are covered by sustainability standards
and certifications equivalent to SAI Platform’s Farm Sustainability
Assessment (FSA). Or our suppliers can demonstrate continuous
improvement on the most relevant risks to their crops, and investment
in farm-level programmes such as emissions and post-harvest loss
reduction, soil health improvements and adoption of regenerative
agriculture practices. We are also working with our suppliers to
improve the traceability of raw materials.
Guinness – in partnership with nature
This year we launched one of the most ambitious regenerative
agriculture pilots to take place in Ireland: a three-year, farm-
based programme that aims to highlight opportunities for
reducing the carbon emissions of barley production for Guinness.
We’re taking an integrated landscape approach, working with
farmers and land managers to identify and implement
regenerative practices that optimise carbon, water and
biodiversity-based outcomes, while increasing farm resilience.
Diageo Annual Report 2022
31
Our performance
Monitoring performance and progress
Net sales growth (%)
Operating profit growth (%)
Basic earnings per share (pence)
Net cash from operating activities
Return on closing invested
2022
2021
2020 (8.7)
2019
2018
8.3
5.8
0.9
REP
21.4
2022
2021
2020
(47.1)
2019
2018
18.2
9.5
3.7
REP
74.6
2022
2021
2020
2019
2018
60.1
140.2
113.8
130.7
121.7
(£ million)
capital (%)
Definition
Sales growth after deducting excise duties.
Organic net sales growth (%)1
Operating profit growth, including
exceptional operating items.
Profit attributable to equity shareholders of
the parent company, divided by the weighted
average number of shares in issue.
Net cash from operating activities
Profit for the year divided by net assets at the
comprises the net cash flow from operating
end of the financial year.
activities as disclosed on the face of the
consolidated statement of cash flows.
Organic operating profit
growth (%)1
26.3%
EG
CVC
EG
CVC
R
K
21.4
16.0
2022
2021
2020
(14.4)
2019
2018
6.1
5.0
17.7
9.0
7.6
R
K
26.3
Earnings per share before
exceptional items (pence)1
151.9p
CVC
EG
2022
2021
2020
2019
2018
117.5
109.4
130.8
118.6
Free cash flow (£ million)1,2
Return on average invested
Total shareholder return (TSR) (%)
2,783m
capital (ROIC) (%)1
16.8%
4%
R
K
151.9
21.4%
2022
2021
2020
(8.4)
2019
2018
Definition
Sales growth after deducting excise duties,
excluding the impact of exchange rate
movements, hyperinflation adjustment and
acquisitions and disposals.
Organic operating profit growth is calculated
on a constant currency basis, excluding the
impact of exceptional items, certain fair
value remeasurement, hyperinflation
adjustment and acquisitions
and disposals.
Profit before exceptional items attributable to
equity shareholders of the parent company,
divided by the weighted average number of
shares in issue.
Why we measure
This measure reflects our performance as
the result of the choices made in terms of
category and market participation,
and Diageo’s ability to build brand equity,
increase prices and grow market share.
Performance
Reported net sales grew 21.4%, driven by
strong organic growth. An unfavourable
foreign exchange impact was partially offset
by a hyperinflation adjustment in respect of
Turkey. Organic net sales growth of 21.4%
reflects organic volume growth of 10.3% and
11.1 percentage points of positive price/mix.
The movement in operating profit measures
the efficiency and effectiveness of the
business. Consistent operating profit growth is
a business imperative, driven by investment
choices, our focus on driving out costs across
the business and improving mix.
Earnings per share reflects the profitability
of the business and how effectively we
finance our balance sheet. It is a
key measure for our shareholders.
Reported operating profit increased 18.2%,
primarily driven by growth in organic
operating profit. This was partially offset by
the negative impact of exceptional operating
items, which were mainly due to non-cash
impairments related to India and Russia.
Basic eps increased 26.4 pence, primarily
driven by organic operating profit growth,
partially offset by higher tax and exceptional
items, primarily due to non-cash impairment
charges related to India and Russia. Basic
eps before exceptional items increased
34.4 pence.
MORE DETAIL ON PAGE 59
MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 58
1. Organic net sales growth, organic operating profit growth, earnings per share before exceptional items, free cash flow and return on average invested capital are non-GAAP measures.
See definitions and reconciliation of non-GAAP measures to GAAP measures on pages 76-83.
2. For reward purposes this measure is further adjusted for the impact of exchange rates, hyperinflation adjustment and other factors not controlled by management, to ensure focus on our
underlying performance drivers
32
Diageo Annual Report 2022
Free cash flow comprises the net cash flow
Profit before finance charges and exceptional
Percentage growth in the value of a
from operating activities aggregated with
the net cash received/paid for working
capital loans receivable and other
items attributable to equity shareholders
Diageo share (assuming all dividends
divided by average invested capital. Invested
and capital distributions are re-invested).
capital comprises net assets aggregated with
investments, and the net cash expenditure
exceptional restructuring costs and goodwill
paid for property, plant and equipment, and
at the date of transition to IFRS, excluding net
computer software.
post employment benefit assets/liabilities,
net borrowings and non-controlling interests.
Free cash flow is a key indicator of the
financial management of the business
and reflects the cash generated by the
business to fund payments to our
shareholders and acquisitions.
ROIC is used by management to assess
Diageo’s Directors have a fiduciary
the return obtained from the group’s asset
responsibility to maximise long-term value for
base. Improving ROIC builds financial
strength, to enable Diageo to attain its
financial objectives.
shareholders. We also monitor our relative
TSR performance against our peers.
Net cash from operating activities increased
ROIC increased 331bps, driven mainly by
TSR was up 4% over the past 12 months
by £281 million to £3,935 million. Free cash
organic operating profit growth, partially
driven by the higher year-on-year share price.
offset by higher tax.
flow decrease of £254 million was driven
by the impact of lapping a strong working
capital benefit in fiscal 21 and increased
capex, partially offset by a strong growth in
operating profit.
MORE DETAIL ON PAGE 59
Our performance
Monitoring performance and progress
2020 (8.7)
2022
2021
2019
2018
Definition
Definition
8.3
5.8
0.9
REP
21.4
2020
(47.1)
2022
2021
2019
2018
18.2
9.5
3.7
REP
74.6
Sales growth after deducting excise duties.
Sales growth after deducting excise duties.
Operating profit growth, including
Operating profit growth, including
exceptional operating items.
exceptional operating items.
Profit attributable to equity shareholders of
Profit attributable to equity shareholders of
the parent company, divided by the weighted
the parent company, divided by the weighted
average number of shares in issue.
average number of shares in issue.
Organic net sales growth (%)1
Organic net sales growth (%)1
Organic operating profit
Organic operating profit
EG
CVC
R
K
EG
CVC
R
K
EG
CVC
R
K
21.4
16.0
26.3
17.7
2020
(8.4)
2020
(14.4)
6.1
5.0
9.0
7.6
151.9
117.5
109.4
130.8
118.6
growth (%)1
growth (%)1
26.3%
26.3%
2022
2021
2019
2018
Earnings per share before
Earnings per share before
exceptional items (pence)1
exceptional items (pence)1
151.9p
151.9p
Sales growth after deducting excise duties,
Sales growth after deducting excise duties,
Organic operating profit growth is calculated
Organic operating profit growth is calculated
Profit before exceptional items attributable to
Profit before exceptional items attributable to
excluding the impact of exchange rate
excluding the impact of exchange rate
on a constant currency basis, excluding the
on a constant currency basis, excluding the
equity shareholders of the parent company,
equity shareholders of the parent company,
movements, hyperinflation adjustment and
movements, hyperinflation adjustment and
impact of exceptional items, certain fair
impact of exceptional items, certain fair
divided by the weighted average number of
divided by the weighted average number of
acquisitions and disposals.
acquisitions and disposals.
value remeasurement, hyperinflation
value remeasurement, hyperinflation
shares in issue.
shares in issue.
adjustment and acquisitions
adjustment and acquisitions
and disposals.
and disposals.
2022
2021
2020
2019
2018
2022
2021
2020
2019
2018
This measure reflects our performance as
This measure reflects our performance as
the result of the choices made in terms of
the result of the choices made in terms of
category and market participation,
category and market participation,
The movement in operating profit measures
The movement in operating profit measures
Earnings per share reflects the profitability
Earnings per share reflects the profitability
the efficiency and effectiveness of the
the efficiency and effectiveness of the
of the business and how effectively we
of the business and how effectively we
business. Consistent operating profit growth is
business. Consistent operating profit growth is
finance our balance sheet. It is a
finance our balance sheet. It is a
and Diageo’s ability to build brand equity,
and Diageo’s ability to build brand equity,
a business imperative, driven by investment
a business imperative, driven by investment
key measure for our shareholders.
key measure for our shareholders.
increase prices and grow market share.
increase prices and grow market share.
choices, our focus on driving out costs across
choices, our focus on driving out costs across
the business and improving mix.
the business and improving mix.
21.4%
21.4%
2022
2021
2019
2018
Definition
Definition
Why we measure
Why we measure
Performance
Performance
Net sales growth (%)
Net sales growth (%)
Operating profit growth (%)
Operating profit growth (%)
Basic earnings per share (pence)
Basic earnings per share (pence)
Net cash from operating activities
Net cash from operating activities
(£ million)
(£ million)
Return on closing invested
Return on closing invested
capital (%)
capital (%)
Our strategic outcomes
EG
Efficient growth
60.1
140.2
113.8
130.7
121.7
2022
2021
2020
2019
2018
3,935
3,654
2,320
3,248
3,084
2022
2021
2020
2019
2018
35.1
CVC
Consistent value creation
17.2
33.2
32.9
26.8
CT
Credibility and trust
EP
Engaged people
R
Remuneration: Some KPIs are used as a measure
in the incentives plans for the remuneration of
executives. See our Directors’ remuneration report
from page 106 for more detail.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Net cash from operating activities
Net cash from operating activities
comprises the net cash flow from operating
comprises the net cash flow from operating
activities as disclosed on the face of the
activities as disclosed on the face of the
consolidated statement of cash flows.
consolidated statement of cash flows.
Free cash flow (£ million)1,2
Free cash flow (£ million)1,2
2,783m
2,783m
2022
2021
2020
2019
2018
EG
CVC
R
K
2,783
3,037
1,634
2,608
2,523
Profit for the year divided by net assets at the
Profit for the year divided by net assets at the
end of the financial year.
end of the financial year.
K
KPI: Key Performance Indicator
REP
Reported
Return on average invested
Return on average invested
capital (ROIC) (%)1
capital (ROIC) (%)1
16.8%
16.8%
CVC
2022
2021
2020
2019
2018
13.5
12.4
15.1
14.3
Total shareholder return (TSR) (%)
Total shareholder return (TSR) (%)
K
16.8
4%
4%
2022
2021
2020
(19)
2019
2018
4
CVC
R
K
32
27
23
Free cash flow comprises the net cash flow
Free cash flow comprises the net cash flow
from operating activities aggregated with
from operating activities aggregated with
the net cash received/paid for working
the net cash received/paid for working
capital loans receivable and other
capital loans receivable and other
investments, and the net cash expenditure
investments, and the net cash expenditure
paid for property, plant and equipment, and
paid for property, plant and equipment, and
computer software.
computer software.
Profit before finance charges and exceptional
Profit before finance charges and exceptional
items attributable to equity shareholders
items attributable to equity shareholders
divided by average invested capital. Invested
divided by average invested capital. Invested
capital comprises net assets aggregated with
capital comprises net assets aggregated with
exceptional restructuring costs and goodwill
exceptional restructuring costs and goodwill
at the date of transition to IFRS, excluding net
at the date of transition to IFRS, excluding net
post employment benefit assets/liabilities,
post employment benefit assets/liabilities,
net borrowings and non-controlling interests.
net borrowings and non-controlling interests.
Percentage growth in the value of a
Percentage growth in the value of a
Diageo share (assuming all dividends
Diageo share (assuming all dividends
and capital distributions are re-invested).
and capital distributions are re-invested).
Free cash flow is a key indicator of the
Free cash flow is a key indicator of the
financial management of the business
financial management of the business
and reflects the cash generated by the
and reflects the cash generated by the
business to fund payments to our
business to fund payments to our
shareholders and acquisitions.
shareholders and acquisitions.
ROIC is used by management to assess
ROIC is used by management to assess
the return obtained from the group’s asset
the return obtained from the group’s asset
base. Improving ROIC builds financial
base. Improving ROIC builds financial
strength, to enable Diageo to attain its
strength, to enable Diageo to attain its
financial objectives.
financial objectives.
Diageo’s Directors have a fiduciary
Diageo’s Directors have a fiduciary
responsibility to maximise long-term value for
responsibility to maximise long-term value for
shareholders. We also monitor our relative
shareholders. We also monitor our relative
TSR performance against our peers.
TSR performance against our peers.
Reported net sales grew 21.4%, driven by
Reported net sales grew 21.4%, driven by
strong organic growth. An unfavourable
strong organic growth. An unfavourable
Reported operating profit increased 18.2%,
Reported operating profit increased 18.2%,
primarily driven by growth in organic
primarily driven by growth in organic
Basic eps increased 26.4 pence, primarily
Basic eps increased 26.4 pence, primarily
driven by organic operating profit growth,
driven by organic operating profit growth,
foreign exchange impact was partially offset
foreign exchange impact was partially offset
operating profit. This was partially offset by
operating profit. This was partially offset by
partially offset by higher tax and exceptional
partially offset by higher tax and exceptional
by a hyperinflation adjustment in respect of
by a hyperinflation adjustment in respect of
the negative impact of exceptional operating
the negative impact of exceptional operating
items, primarily due to non-cash impairment
items, primarily due to non-cash impairment
Turkey. Organic net sales growth of 21.4%
Turkey. Organic net sales growth of 21.4%
items, which were mainly due to non-cash
items, which were mainly due to non-cash
charges related to India and Russia. Basic
charges related to India and Russia. Basic
reflects organic volume growth of 10.3% and
reflects organic volume growth of 10.3% and
impairments related to India and Russia.
impairments related to India and Russia.
eps before exceptional items increased
eps before exceptional items increased
11.1 percentage points of positive price/mix.
11.1 percentage points of positive price/mix.
34.4 pence.
34.4 pence.
Net cash from operating activities increased
Net cash from operating activities increased
by £281 million to £3,935 million. Free cash
by £281 million to £3,935 million. Free cash
flow decrease of £254 million was driven
flow decrease of £254 million was driven
by the impact of lapping a strong working
by the impact of lapping a strong working
capital benefit in fiscal 21 and increased
capital benefit in fiscal 21 and increased
capex, partially offset by a strong growth in
capex, partially offset by a strong growth in
operating profit.
operating profit.
ROIC increased 331bps, driven mainly by
ROIC increased 331bps, driven mainly by
organic operating profit growth, partially
organic operating profit growth, partially
offset by higher tax.
offset by higher tax.
TSR was up 4% over the past 12 months
TSR was up 4% over the past 12 months
driven by the higher year-on-year share price.
driven by the higher year-on-year share price.
MORE DETAIL ON PAGE 59
MORE DETAIL ON PAGE 59
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MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 59
MORE DETAIL ON PAGE 59
MORE DETAIL ON PAGE 58
MORE DETAIL ON PAGE 58
1. Organic net sales growth, organic operating profit growth, earnings per share before exceptional items, free cash flow and return on average invested capital are non-GAAP measures.
See definitions and reconciliation of non-GAAP measures to GAAP measures on pages 76-83.
2. For reward purposes this measure is further adjusted for the impact of exchange rates, hyperinflation adjustment and other factors not controlled by management, to ensure focus on our
underlying performance drivers
32
Diageo Annual Report 2022
Diageo Annual Report 2022
33
Our performance continued
Positive drinking
Inclusion and diversity
CT
EP
R
K
CVC
CT
EP
R
K
Number of people educated
on the dangers of underage
drinking through a Diageo
supported education
programme
607,374Δ
(2021: 210,443)
Percentage of female leaders
globally
44%Δ
(2021: 42%)
Total to date:
1.81m1
Percentage of ethnically
diverse leaders globally
41%Δ
(2021: 37%)
Carbon emissions2
447Δ
CVC
2022
2021
2020
2019
2018
CT
EP
R
K
447
472
492
533
570
Definition
Number of people educated on the dangers of
underage drinking through a Diageo supported
education programme.
Why we measure
We want to change the way the world drinks for
the better by promoting moderation and
addressing the harmful use of alcohol.
Performance
This year we implemented SMASHED Live in 15
countries and SMASHED Online in 18 countries.
We educated 607,374Δ young people about the
dangers of underage drinking.
The percentage of women and the percentage of
ethnically diverse individuals who are in Diageo
leadership roles.
Absolute volume of Scope 1 and 2 carbon
emissions, in 1,000 tonnes.
Nurturing an inclusive and diverse culture is the
right thing to do, and having the most diverse
talent drives commercial performance.
Reducing our carbon emissions is a significant part
of our efforts to mitigate climate change.
This year 44%Δ of our leadership roles were held
by women, compared with 42% last year and
41%Δ of our leaders were ethnically diverse,
compared with 37% last year.
Carbon emissions reduced by 5.3%Δ in fiscal 22.
The principal drivers of this were energy efficiency
gains and the ongoing displacement of fossil fuels,
including the use of renewable energy certificates.
MORE DETAIL ON PAGE 35
MORE DETAIL ON PAGE 35
MORE DETAIL ON PAGE 37
Water efficiency2
4.13Δ
CVC
CT
EP
R
K
Employee engagement (%)
82%
CT
EP
K
Health and safety (LTA)
0.92Δ
CT
EP
K
2022
2021
2020
2019
2018
4.13
4.29
4.63
4.66
4.81
2022
2021
2020 N/A4
2019
2018
82%
81%3
75%
76%
2022
2021
2020
2019
2018
0.60
0.92
1.03
0.98
1.00
Definition
Ratio of the amount of water required to produce
one litre of packaged product.
Why we measure
Water is the main ingredient in all of our brands.
We aim to improve efficiency, and minimise our
water use, particularly in water-stressed areas.
Performance
Water efficiency improved by 3.7%Δ compared to
fiscal 21. This resulted from fully commissioned
water recovery and reuse plants in Kenya and
Uganda, and overall improved water use rates
at a number of other locations.
Measured through our Your Voice survey;
includes metrics for employee satisfaction,
advocacy and pride.3
Number of accidents per 1,000 full-time employees
and directly supervised contractors resulting in time
lost from work of one calendar day or more.
Employee engagement is a key enabler of our
performance. The survey allows us to measure how
far employees believe we are living our values.
Health and safety is a basic human right; our
Zero Harm philosophy is that everyone should go
home safe and healthy, every day, everywhere.
This year 88% of our people completed our Your
Voice survey. 82% were identified as engaged.
90% declared themselves proud to work for
Diageo, 82% would recommend Diageo as a
great place to work and 76% were extremely
satisfied with Diageo as a place to work.
This year’s rate of 0.92Δ is an improvement on fiscal
21 performance. The severity rate of these lost-time
accidents (LTAs), which measures the seriousness
of the incident and consequent absence from work,
reduced by 13.9% globally.
MORE DETAIL ON PAGE 36
MORE DETAIL ON PAGE 18
MORE DETAIL ON PAGE 39-40
1. The baseline year for our ‘Society 2030: Spirit of Progress’ goals is 2020 unless otherwise stated. For our target to educate 10 million young people, parents and teachers on the dangers
2.
of underage drinking the baseline year is 2018.
In accordance with Diageo’s environmental reporting methodologies and, where relevant, WRI/WBCSD GHG Protocol, data for the baseline year 2020 and for the two years in the period
ended 30 June 2019 has been restated where relevant.
3. Last year we updated the way we measure employee engagement in our Your Voice survey to bring it in line with standard practice. When the 2019 employee engagement index score
from the Your Voice survey is recalculated based on the three questions we used in 2021 (satisfaction, advocacy and pride), as opposed to the four we used in 2019 (satisfaction,
advocacy, pride and loyalty), the difference is a one percentage point increase.
4. Because of the Covid-19 pandemic, in 2020 we did not run a full Your Voice survey. Instead we used a pulse survey tool to listen to employees’ feedback and learn from their experiences
of working during the pandemic. We therefore do not have a comparable employee engagement metric for 2020.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index.
34
Diageo Annual Report 2022
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Number of people educated
on the dangers of underage
drinking through a Diageo
supported education
programme
607,374Δ
(2021: 210,443)
Total to date:
1.81m1
Percentage of female leaders
globally
Percentage of ethnically
diverse leaders globally
447Δ
44%Δ
(2021: 42%)
41%Δ
(2021: 37%)
2022
2021
2020
2019
2018
447
472
492
533
570
Definition
education programme.
Why we measure
the better by promoting moderation and
addressing the harmful use of alcohol.
Performance
This year we implemented SMASHED Live in 15
countries and SMASHED Online in 18 countries.
Number of people educated on the dangers of
The percentage of women and the percentage of
Absolute volume of Scope 1 and 2 carbon
underage drinking through a Diageo supported
ethnically diverse individuals who are in Diageo
emissions, in 1,000 tonnes.
leadership roles.
We want to change the way the world drinks for
Nurturing an inclusive and diverse culture is the
Reducing our carbon emissions is a significant part
right thing to do, and having the most diverse
of our efforts to mitigate climate change.
talent drives commercial performance.
We educated 607,374Δ young people about the
41%Δ of our leaders were ethnically diverse,
dangers of underage drinking.
MORE DETAIL ON PAGE 35
compared with 37% last year.
MORE DETAIL ON PAGE 35
This year 44%Δ of our leadership roles were held
Carbon emissions reduced by 5.3%Δ in fiscal 22.
by women, compared with 42% last year and
The principal drivers of this were energy efficiency
gains and the ongoing displacement of fossil fuels,
including the use of renewable energy certificates.
MORE DETAIL ON PAGE 37
CVC
CT
EP
R
K
CT
EP
K
CT
EP
K
Employee engagement (%)
Health and safety (LTA)
82%
2020 N/A4
2022
2021
2019
2018
4.13
4.29
4.63
4.66
4.81
0.92Δ
2022
2021
2020
2019
2018
0.60
0.92
1.03
0.98
1.00
82%
81%3
75%
76%
Ratio of the amount of water required to produce
Measured through our Your Voice survey;
one litre of packaged product.
includes metrics for employee satisfaction,
advocacy and pride.3
Number of accidents per 1,000 full-time employees
and directly supervised contractors resulting in time
lost from work of one calendar day or more.
Water is the main ingredient in all of our brands.
Employee engagement is a key enabler of our
Health and safety is a basic human right; our
We aim to improve efficiency, and minimise our
performance. The survey allows us to measure how
Zero Harm philosophy is that everyone should go
water use, particularly in water-stressed areas.
far employees believe we are living our values.
home safe and healthy, every day, everywhere.
Water efficiency improved by 3.7%Δ compared to
This year 88% of our people completed our Your
This year’s rate of 0.92Δ is an improvement on fiscal
Voice survey. 82% were identified as engaged.
21 performance. The severity rate of these lost-time
fiscal 21. This resulted from fully commissioned
water recovery and reuse plants in Kenya and
Uganda, and overall improved water use rates
at a number of other locations.
90% declared themselves proud to work for
Diageo, 82% would recommend Diageo as a
great place to work and 76% were extremely
satisfied with Diageo as a place to work.
accidents (LTAs), which measures the seriousness
of the incident and consequent absence from work,
reduced by 13.9% globally.
MORE DETAIL ON PAGE 36
MORE DETAIL ON PAGE 18
MORE DETAIL ON PAGE 39-40
1. The baseline year for our ‘Society 2030: Spirit of Progress’ goals is 2020 unless otherwise stated. For our target to educate 10 million young people, parents and teachers on the dangers
2.
In accordance with Diageo’s environmental reporting methodologies and, where relevant, WRI/WBCSD GHG Protocol, data for the baseline year 2020 and for the two years in the period
of underage drinking the baseline year is 2018.
ended 30 June 2019 has been restated where relevant.
3. Last year we updated the way we measure employee engagement in our Your Voice survey to bring it in line with standard practice. When the 2019 employee engagement index score
from the Your Voice survey is recalculated based on the three questions we used in 2021 (satisfaction, advocacy and pride), as opposed to the four we used in 2019 (satisfaction,
advocacy, pride and loyalty), the difference is a one percentage point increase.
4. Because of the Covid-19 pandemic, in 2020 we did not run a full Your Voice survey. Instead we used a pulse survey tool to listen to employees’ feedback and learn from their experiences
of working during the pandemic. We therefore do not have a comparable employee engagement metric for 2020.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index.
Water efficiency2
4.13Δ
2022
2021
2020
2019
2018
Definition
Why we measure
Performance
Our performance continued
Sustainability performance
Positive drinking
Inclusion and diversity
Carbon emissions2
CT
EP
R
K
CVC
CT
EP
R
K
CVC
CT
EP
R
K
Performing against our 2030 targets1
Target by 2030
Promote positive drinking
Champion health literacy and
tackle harm through DRINKiQ
in every market where we live,
work, source and sell (where it
is legally permissible)
SDG alignment: 3.4; 3.5; 17.16
Fiscal 22 progress
Number of markets
that have launched
DRINKiQ
6
Scale up our SMASHED
partnership, and educate 10
million young people, parents,
and teachers on the dangers of
underage drinking
SDG alignment: 3.5; 17.16
Extend our UNITAR partnership
and promote changes in
attitudes to drink driving
reaching five million people
SDG alignment: 3.5; 3.6; 17.16
Leverage Diageo marketing
and innovation to make
moderation the norm –
reaching one billion people
with dedicated responsible
drinking messaging
SDG alignment: 3.5; 17.16
Number of people
educated on the
dangers of underage
drinking through a
Diageo supported
education
programme
607,374Δ
Number of people
educated about the
dangers of drink
driving
500,415
Number of people
reached with
responsible drinking
messages from our
brands
456 million
Champion inclusion and diversity
Champion gender diversity
with an ambition to achieve
50% representation of women
in leadership roles by 20302
SDG alignment: 5.5; 10.2; 10.4
Percentage of female
leaders globally
+2ppt
Champion ethnic diversity with
an ambition to increase
representation of leaders from
ethnically diverse backgrounds
to 45% by 20302
SDG alignment: 10.2; 10.4
We will use our creative and
media spend to support
progressive voices, measuring
and increasing the percentage
spend year on year
SDG alignment: 5.5; 5B; 10.2;
10.4
Percentage of
ethnically diverse
leaders globally
+4ppt
Measurement and
evaluation
framework under
development
Progress to date
Commentary
21∆
1.81m
510,274
823m
44%Δ
41%Δ
Our enhanced DRINKiQ.com platform provides facts about alcohol, the effects of
drinking on the mind and the body, and the impact of harmful drinking on individuals
and society. This year we reached our 2030 target of launching DRINKiQ in every
market where we live, work, source and sell, covering a total of 21Δ markets, 73
countries and 23 languages. Going forward we aim to drive traffic to and engagement
with this resource among adults above the legal purchase age.
SMASHED is our flagship underage drinking programme, developed in partnership
with Collingwood Learning. It started as a live theatre-based education programme in
2005, and we developed a digital version, SMASHED Online, in 2021, which is now live
in 23 countries. This year we further extended the global scale of the programme,
implementing SMASHED Live in 15 countries and launching SMASHED Online in 18
countries. In total, SMASHED educated 607,374Δ young people about the dangers of
underage drinking, with survey data showing that 491,128Δ confirmed changed
attitudes on the dangers of underage drinking following participation in the
programme. We’ve educated 1.81 million people since our baseline year of 2018.
‘Wrong Side of the Road’ is our innovative anti-drink-drive experience, designed to
change the attitudes of people to drink driving. Launched in 2021, the experience is live
in 24 countries, reaching 500,415 people this year. ‘Wrong Side of the Road’ allows
users to learn from former impaired drivers through pre-recorded videos to understand
the effects of alcohol and driving, as well as the consequences of making the decision
to drive while impaired. We have reached a total of 510,274 people with our
programmes since 2020.
We reached 456 million people this year, reflecting significant progress towards our
2030 goal. Notable campaigns include the Captain Morgan anti-drink-drive
campaign ‘A mate doesn’t let a mate drink drive’ in Great Britain, developed in
collaboration with Think!. In the United States, Crown Royal, Captain Morgan and
Smirnoff had responsible drinking messaging and game activations throughout the
National Football League (NFL) season. During the festive period we accelerated
brand-led responsible drinking campaigns to reach more people. This year we also
began to explore the role non-alcoholic products play in offering consumers more
choice, thus helping them moderate their alcohol intake. We promoted our 0.0 non-
alcoholic spirits to travellers across our Global Travel Channel. We’ll use insights from
our research into perceptions of non-alcoholic products to inform how we reach our
2030 goals to promote moderation.
We want to continue to build our reputation as an inclusive employer committed to
advancing efforts to achieve gender equality. Each of our markets has stretching multi-
year inclusion and diversity plans, which include a focus on empowering women to
flourish in all roles. This year 44%Δ of our leadership roles were held by women, up
from 42% in 2021. Once again we’ve received external recognition – notably our fifth
consecutive year in the Bloomberg Equality Index, where we see year-on-year positive
shifts, and a number 14 ranking in the FTSE Women Leaders Review, recognising our
commitment to improve the representation of females in Board and leadership roles.
Ethnicity is a global inclusion and diversity priority. We’re deepening ethnic
representation and diversity at every level of our business, with 41% of our leadership
population, including our Executive Committee, identifying as being ethnically diverse,
up from 37% in 2021. We collect voluntary ethnicity data in 64 countries where local
legislation allows. Across these countries, 82% of employees at all levels have
disclosed their ethnicity information confidentially, and within our leadership
population, 96% have disclosed their ethnicity.
We partner with our advertising agencies to ensure our creative teams are as diverse
as our consumers. We’re in the fourth year of collecting insight about the make-up of
our agency workforce. We commit media investment to platforms and with publishers
that are working to make mainstream media both more diverse and more inclusive.
For example, we have established a Progressive Programming strategy with Channel 4
in the United Kingdom, where we contextually support progressive content by picking
our programming investment across linear TV and its on demand platform. We
continue to make sure our advertising reaches a broad consumer base, including
those living with disabilities. For example, Tusker Lager – a local jewel in East Africa –
partnered with a media house that broadcasts exclusively in sign language to ensure
the Tusker Milele campaign was translated to audiences during the Olympic Games.
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35
35
1. All baselines for our ‘Society 2030: Spirit of Progress’ targets and ambitions are 2020, unless otherwise stated
2. Statements on representation should be considered an ambition for Diageo, not a target
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index.
Sustainability performance continued
Target by 2030
Fiscal 22 progress
Progress to date
Commentary
Champion inclusion and diversity (continued)
Accelerate inclusion and
diversity in our value chain,
measuring and increasing the
percentage of spend with
Diageo suppliers from diverse-
owned and disadvantaged
businesses to 15%1
SDG alignment: 5.5; 5B; 10.2;
10.4
Percentage of spend
with diverse-owned
and disadvantaged
businesses
4.8%
4.8%
Provide business and hospitality
skills to 200,000 people,
increasing employability and
improving livelihoods through
Learning for Life (L4L) and our
other skills programmes
SDG alignment: 4.4; 8.1; 8.6
10.2; 17.16
Through the Diageo Bar
Academy we will deliver 1.5
million training sessions,
providing skills and resources
to help build a thriving
hospitality sector that works for
all
SDG alignment: 4.4; 8.1; 8.6;
10.2; 17.16
Number of people
reached through L4L
and other skills
programmes
22,230
Number of training
sessions delivered
through Diageo Bar
Academy
190,383
30,861
303,830
Ensure 50% of beneficiaries
from our community
programmes are women, and
that our community
programmes are designed to
enhance diversity and inclusion
of underrepresented groups
SDG alignment: 5.5; 5A
Percentage of
beneficiaries of our
community
programmes who are
women
64%
On track
This year we launched our Supplier Diversity programme globally and announced an
ambitious goal to increase the share of our global spend with diverse-owned and
disadvantaged businesses to 15% by 2030.
We have partnered with peer companies and advocacy organisations, as well as
engaging our markets, to identify underrepresented groups at a regional level. We are
confident that this will drive inclusion and diversity throughout our value chain –
creating employment opportunities, economic advancement and greater
representation in the marginalised communities of regions where we source.
At the end of fiscal 21, we surveyed 1,500 suppliers, representing around 80% of our
global spend, to establish a baseline of our diverse suppliers. We’re using this baseline
to track the progress of diverse spend across our business. We’re proud that, in the first
year of the programme, we have increased our spend with diverse businesses by more
than 65% – and have been awarded gold by a panel of leading advocacy
organisations in the Top Global Champion Awards for Supplier Diversity and Inclusion.
This year we reached 22,230 people through our business and hospitality skills
programmes. We continued to deliver L4L in person and online, working in partnership
with our network of charities and training providers. We’ve engaged a specialist
learning partner for social impact programmes to enhance our training materials,
platforms, and measurement and evaluation of our skills programmes.
We delivered over 190,000 skills training sessions to hospitality industry workers –
owners, managers, bartenders and waiting staff – through Diageo Bar Academy (DBA)
this year. DBA delivers a variety of courses, both online and in-person. This year, as
pandemic restrictions eased, we returned to face-to-face training in addition to virtual
training, allowing us to reach people at scale and with more intensive, hands-on
learning experiences. We modified many of our courses to help address the unique
challenges of the industry re-opening. DBA also supports the development of a more
diverse and inclusive hospitality sector; we continue to increase the participation of
women, and run women-only sessions in Africa and India. Our research this year
showed that 84% of people surveyed said DBA presents a modern and progressive
view of the bar community. In addition, 68% of women surveyed agreed that DBA
actively supports the advancement of women in the industry.
This year 64% of beneficiaries of our L4L programme were women, up from 51% last
year. We have now defined our approach to ensuring women are proportionately
represented in our community water and smallholder farmer programmes, which we’ll
start implementing next year with the support of our global NGO partners WaterAid
and CARE International UK. L4L is gender inclusive by design, which means we put in
place measures that reduce barriers to women accessing the skills, resources and
opportunities we provide. For example, we offer training at times of the day that don’t
clash with childcare responsibilities, and also make it available online and on-demand.
This year we conducted research to understand the barriers to ethnic minorities in
hospitality, which led us to update L4L. The programme is also partnering with the
Diageo Bar Academy to tackle barriers through training, communications and
customer partnerships – helping to create an inclusive and thriving hospitality industry
that works for all.
Pioneer grain-to-glass sustainability: Preserve water for life
Reduce water use in our
operations with a 40%
improvement in water use
efficiency in water-stressed
areas and 30% improvement
across the company
SDG alignment: 6.4; 17.16
Percentage
improvement in litres
of water used per litre
of packaged product
7.8% in water-
stressed
areas
14.9%
3.7%Δ across the
company
Replenish more water than we
use for our operations for all of
our sites in water-stressed areas
by 2026
SDG alignment: 6.1; 6.2; 6.6;
6B; 15.1
Percentage of water
replenished in water-
stressed areas
15.3%
10.8%
43.2%
Across the company, we delivered a 3.7%Δ improvement in water efficiency this year
and, cumulatively, water-use rates have improved by 10.8% versus our 2020 baseline.
In water-stressed areas, water efficiency improved by 7.8% and 14.9% versus our 2020
baseline. In addition, the volume of water we recycled or reused in our own production
ancillary processes was 1,132,367m3, representing 6.5% of total water withdrawals.
Our Africa region’s water stewardship work has been particularly impressive.
Alongside three existing facilities in Kenya and Uganda, we began delivering water
efficiency improvements at our site in Lagos, Nigeria through a water recovery and
recycling facility. This year we used 21,896m3 of water for agricultural purposes on land
under our operational control. We report this separately from water used in our direct
operations and do not include it in our water efficiency calculations.
Our water replenishment programme had a strong year in India, where we completed
10 projects across 12 villages. This helped us to exceed our target for the year,
completing, in total, 34 projects in 10 countries – and generating the annual capacity to
replenish 1,058,822m3Δ of water. This represents 15.3% of our target for 2026 and,
cumulatively (fiscal 16 to fiscal 22), represents replenishing 43.2% of our estimated
fiscal 26 volume. This year, replenishment projects in water-stressed catchments where
we operate or where we source raw materials included tree planting in Kenya; access
to clean water and sanitation in Ghana, Uganda and Nigeria; aquifer recharge in
India; and drip irrigation in Turkey and Seychelles.
1. Statements on representation should be considered an ambition for Diageo, not a target
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
36
36
Diageo Annual Report 2022
Diageo Annual Report 2022
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Sustainability performance continued
Sustainability performance continued
Champion inclusion and diversity (continued)
Champion inclusion and diversity (continued)
Accelerate inclusion and
Accelerate inclusion and
diversity in our value chain,
diversity in our value chain,
measuring and increasing the
measuring and increasing the
percentage of spend with
percentage of spend with
Diageo suppliers from diverse-
Diageo suppliers from diverse-
owned and disadvantaged
owned and disadvantaged
businesses to 15%1
businesses to 15%1
SDG alignment: 5.5; 5B; 10.2;
SDG alignment: 5.5; 5B; 10.2;
10.4
10.4
Percentage of spend
Percentage of spend
with diverse-owned
with diverse-owned
and disadvantaged
and disadvantaged
businesses
businesses
4.8%
4.8%
4.8%
Provide business and hospitality
Provide business and hospitality
Number of people
Number of people
skills to 200,000 people,
skills to 200,000 people,
increasing employability and
increasing employability and
improving livelihoods through
improving livelihoods through
Learning for Life (L4L) and our
Learning for Life (L4L) and our
other skills programmes
other skills programmes
SDG alignment: 4.4; 8.1; 8.6
SDG alignment: 4.4; 8.1; 8.6
10.2; 17.16
10.2; 17.16
reached through L4L
reached through L4L
and other skills
and other skills
programmes
programmes
22,230
22,230
30,861
Through the Diageo Bar
Through the Diageo Bar
Academy we will deliver 1.5
Academy we will deliver 1.5
million training sessions,
million training sessions,
Number of training
Number of training
sessions delivered
sessions delivered
through Diageo Bar
through Diageo Bar
providing skills and resources
providing skills and resources
Academy
Academy
to help build a thriving
to help build a thriving
hospitality sector that works for
hospitality sector that works for
190,383
190,383
all
all
SDG alignment: 4.4; 8.1; 8.6;
SDG alignment: 4.4; 8.1; 8.6;
10.2; 17.16
10.2; 17.16
303,830
Ensure 50% of beneficiaries
Ensure 50% of beneficiaries
Percentage of
Percentage of
from our community
from our community
beneficiaries of our
beneficiaries of our
programmes are women, and
programmes are women, and
community
community
that our community
that our community
programmes who are
programmes who are
On track
programmes are designed to
programmes are designed to
enhance diversity and inclusion
enhance diversity and inclusion
of underrepresented groups
of underrepresented groups
women
women
64%
64%
SDG alignment: 5.5; 5A
SDG alignment: 5.5; 5A
Pioneer grain-to-glass sustainability: Preserve water for life
Pioneer grain-to-glass sustainability: Preserve water for life
Reduce water use in our
Reduce water use in our
operations with a 40%
operations with a 40%
improvement in water use
improvement in water use
efficiency in water-stressed
efficiency in water-stressed
areas and 30% improvement
areas and 30% improvement
across the company
across the company
SDG alignment: 6.4; 17.16
SDG alignment: 6.4; 17.16
Percentage
Percentage
improvement in litres
improvement in litres
of water used per litre
of water used per litre
of packaged product
of packaged product
7.8% in water-
7.8% in water-
stressed
stressed
areas
areas
3.7%Δ across the
3.7%Δ across the
company
company
Replenish more water than we
Replenish more water than we
use for our operations for all of
use for our operations for all of
Percentage of water
Percentage of water
replenished in water-
replenished in water-
our sites in water-stressed areas
our sites in water-stressed areas
stressed areas
stressed areas
by 2026
by 2026
6B; 15.1
6B; 15.1
SDG alignment: 6.1; 6.2; 6.6;
SDG alignment: 6.1; 6.2; 6.6;
15.3%
15.3%
14.9%
10.8%
43.2%
This year we launched our Supplier Diversity programme globally and announced an
This year we launched our Supplier Diversity programme globally and announced an
ambitious goal to increase the share of our global spend with diverse-owned and
ambitious goal to increase the share of our global spend with diverse-owned and
disadvantaged businesses to 15% by 2030.
disadvantaged businesses to 15% by 2030.
We have partnered with peer companies and advocacy organisations, as well as
We have partnered with peer companies and advocacy organisations, as well as
engaging our markets, to identify underrepresented groups at a regional level. We are
engaging our markets, to identify underrepresented groups at a regional level. We are
confident that this will drive inclusion and diversity throughout our value chain –
confident that this will drive inclusion and diversity throughout our value chain –
creating employment opportunities, economic advancement and greater
creating employment opportunities, economic advancement and greater
representation in the marginalised communities of regions where we source.
representation in the marginalised communities of regions where we source.
At the end of fiscal 21, we surveyed 1,500 suppliers, representing around 80% of our
At the end of fiscal 21, we surveyed 1,500 suppliers, representing around 80% of our
global spend, to establish a baseline of our diverse suppliers. We’re using this baseline
global spend, to establish a baseline of our diverse suppliers. We’re using this baseline
to track the progress of diverse spend across our business. We’re proud that, in the first
to track the progress of diverse spend across our business. We’re proud that, in the first
year of the programme, we have increased our spend with diverse businesses by more
year of the programme, we have increased our spend with diverse businesses by more
than 65% – and have been awarded gold by a panel of leading advocacy
than 65% – and have been awarded gold by a panel of leading advocacy
organisations in the Top Global Champion Awards for Supplier Diversity and Inclusion.
organisations in the Top Global Champion Awards for Supplier Diversity and Inclusion.
This year we reached 22,230 people through our business and hospitality skills
This year we reached 22,230 people through our business and hospitality skills
programmes. We continued to deliver L4L in person and online, working in partnership
programmes. We continued to deliver L4L in person and online, working in partnership
with our network of charities and training providers. We’ve engaged a specialist
with our network of charities and training providers. We’ve engaged a specialist
learning partner for social impact programmes to enhance our training materials,
learning partner for social impact programmes to enhance our training materials,
platforms, and measurement and evaluation of our skills programmes.
platforms, and measurement and evaluation of our skills programmes.
We delivered over 190,000 skills training sessions to hospitality industry workers –
We delivered over 190,000 skills training sessions to hospitality industry workers –
owners, managers, bartenders and waiting staff – through Diageo Bar Academy (DBA)
owners, managers, bartenders and waiting staff – through Diageo Bar Academy (DBA)
this year. DBA delivers a variety of courses, both online and in-person. This year, as
this year. DBA delivers a variety of courses, both online and in-person. This year, as
pandemic restrictions eased, we returned to face-to-face training in addition to virtual
pandemic restrictions eased, we returned to face-to-face training in addition to virtual
training, allowing us to reach people at scale and with more intensive, hands-on
training, allowing us to reach people at scale and with more intensive, hands-on
learning experiences. We modified many of our courses to help address the unique
learning experiences. We modified many of our courses to help address the unique
challenges of the industry re-opening. DBA also supports the development of a more
challenges of the industry re-opening. DBA also supports the development of a more
diverse and inclusive hospitality sector; we continue to increase the participation of
diverse and inclusive hospitality sector; we continue to increase the participation of
women, and run women-only sessions in Africa and India. Our research this year
women, and run women-only sessions in Africa and India. Our research this year
showed that 84% of people surveyed said DBA presents a modern and progressive
showed that 84% of people surveyed said DBA presents a modern and progressive
view of the bar community. In addition, 68% of women surveyed agreed that DBA
view of the bar community. In addition, 68% of women surveyed agreed that DBA
actively supports the advancement of women in the industry.
actively supports the advancement of women in the industry.
This year 64% of beneficiaries of our L4L programme were women, up from 51% last
This year 64% of beneficiaries of our L4L programme were women, up from 51% last
year. We have now defined our approach to ensuring women are proportionately
year. We have now defined our approach to ensuring women are proportionately
represented in our community water and smallholder farmer programmes, which we’ll
represented in our community water and smallholder farmer programmes, which we’ll
start implementing next year with the support of our global NGO partners WaterAid
start implementing next year with the support of our global NGO partners WaterAid
and CARE International UK. L4L is gender inclusive by design, which means we put in
and CARE International UK. L4L is gender inclusive by design, which means we put in
place measures that reduce barriers to women accessing the skills, resources and
place measures that reduce barriers to women accessing the skills, resources and
opportunities we provide. For example, we offer training at times of the day that don’t
opportunities we provide. For example, we offer training at times of the day that don’t
clash with childcare responsibilities, and also make it available online and on-demand.
clash with childcare responsibilities, and also make it available online and on-demand.
This year we conducted research to understand the barriers to ethnic minorities in
This year we conducted research to understand the barriers to ethnic minorities in
hospitality, which led us to update L4L. The programme is also partnering with the
hospitality, which led us to update L4L. The programme is also partnering with the
Diageo Bar Academy to tackle barriers through training, communications and
Diageo Bar Academy to tackle barriers through training, communications and
customer partnerships – helping to create an inclusive and thriving hospitality industry
customer partnerships – helping to create an inclusive and thriving hospitality industry
that works for all.
that works for all.
Across the company, we delivered a 3.7%Δ improvement in water efficiency this year
Across the company, we delivered a 3.7%Δ improvement in water efficiency this year
and, cumulatively, water-use rates have improved by 10.8% versus our 2020 baseline.
and, cumulatively, water-use rates have improved by 10.8% versus our 2020 baseline.
In water-stressed areas, water efficiency improved by 7.8% and 14.9% versus our 2020
In water-stressed areas, water efficiency improved by 7.8% and 14.9% versus our 2020
baseline. In addition, the volume of water we recycled or reused in our own production
baseline. In addition, the volume of water we recycled or reused in our own production
ancillary processes was 1,132,367m3, representing 6.5% of total water withdrawals.
ancillary processes was 1,132,367m3, representing 6.5% of total water withdrawals.
Our Africa region’s water stewardship work has been particularly impressive.
Our Africa region’s water stewardship work has been particularly impressive.
Alongside three existing facilities in Kenya and Uganda, we began delivering water
Alongside three existing facilities in Kenya and Uganda, we began delivering water
efficiency improvements at our site in Lagos, Nigeria through a water recovery and
efficiency improvements at our site in Lagos, Nigeria through a water recovery and
recycling facility. This year we used 21,896m3 of water for agricultural purposes on land
recycling facility. This year we used 21,896m3 of water for agricultural purposes on land
under our operational control. We report this separately from water used in our direct
under our operational control. We report this separately from water used in our direct
operations and do not include it in our water efficiency calculations.
operations and do not include it in our water efficiency calculations.
Our water replenishment programme had a strong year in India, where we completed
Our water replenishment programme had a strong year in India, where we completed
10 projects across 12 villages. This helped us to exceed our target for the year,
10 projects across 12 villages. This helped us to exceed our target for the year,
completing, in total, 34 projects in 10 countries – and generating the annual capacity to
completing, in total, 34 projects in 10 countries – and generating the annual capacity to
replenish 1,058,822m3Δ of water. This represents 15.3% of our target for 2026 and,
replenish 1,058,822m3Δ of water. This represents 15.3% of our target for 2026 and,
cumulatively (fiscal 16 to fiscal 22), represents replenishing 43.2% of our estimated
cumulatively (fiscal 16 to fiscal 22), represents replenishing 43.2% of our estimated
fiscal 26 volume. This year, replenishment projects in water-stressed catchments where
fiscal 26 volume. This year, replenishment projects in water-stressed catchments where
we operate or where we source raw materials included tree planting in Kenya; access
we operate or where we source raw materials included tree planting in Kenya; access
to clean water and sanitation in Ghana, Uganda and Nigeria; aquifer recharge in
to clean water and sanitation in Ghana, Uganda and Nigeria; aquifer recharge in
India; and drip irrigation in Turkey and Seychelles.
India; and drip irrigation in Turkey and Seychelles.
1. Statements on representation should be considered an ambition for Diageo, not a target
1. Statements on representation should be considered an ambition for Diageo, not a target
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
36
36
36
Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
Target by 2030
Target by 2030
Fiscal 22 progress
Fiscal 22 progress
Progress to date
Progress to date
Commentary
Commentary
Target by 2030
Fiscal 22 progress
Progress to date
Commentary
Percentage of water-
stressed markets with
investment in WASH
88.9%Δ
Pioneer grain-to-glass sustainability: Preserve water for life (continued)
Invest in improving access to clean
water, sanitation, and hygiene
(WASH) in communities near our
sites and local sourcing areas in all
of our water-stressed markets
SDG alignment: 6.1; 6.2; 6.6; 6A; 6B;
15.1; 17.16
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
SDG alignment: 6.1; 6.2; 6.5; 6.6; 6A;
6B; 15.1; 17.16
Percentage of priority
water basins with
collective action
participation
33.3%
4
8
The continuing pandemic makes it especially important for implementing WASH
projects in vulnerable communities. As part of our replenishment programme we
completed 22 WASH projects in eight countries: Brazil, India, Nigeria, Ghana,
Uganda, Kenya, Tanzania and South Africa. In total, 135,800 people benefitted
from these WASH projects this year. We have now implemented WASH projects
in eight of the nine water-stressed markets (countries) where lack of access to
clean drinking water and sanitation is a risk.
Our structured collective action programme is fundamental to improving water
security in our priority water basins, and how we’re adapting to climate change.
Last year we identified priority water basins in four regions where we operate,
based on water risk and strategic importance to our business. This year we
engaged in collective action initiatives in another two priority basins in India (in
the Ganges basin) and Kenya (in the Upper Tana basin), which means in total
we’re participating in four initiatives in four of our 121 priority water basins.
Pioneer grain-to-glass sustainability: Accelerate to a low-carbon world
Become net zero carbon in our
direct operations (Scopes 1 and 2)2,3
SDG alignment: 7.2; 7.3; 12.6; 13.3
9.0%
Percentage reduction
in absolute GHG
(ktCO2e)
5.3%Δ
This year we reduced GHG emissions by 5.3%Δ, building on our 2021
achievement of a 4.0%4 reduction in absolute emissions. This emissions reduction
was despite a year-on-year increase of 9.6% in packaged volume and 6.7% in
distilled volume. GHG emission reductions were driven by continuous
improvement projects and an increase in the use of certificate-backed renewable
gas at production sites in the United Kingdom and Canada. Our facilities in
Uganda and Kenya are in the final stage of commissioning new biomass
facilities, which will be operational in early fiscal 23. The expected annual carbon
saving is approximately 40,000–50,000 tonnes GHG.
We continue to identify the right technologies to support our decarbonisation
journey across our global portfolio of sites. Given the varying maturity of
renewable infrastructure across our markets, and the time it takes to build and
commission large decarbonisation assets, we acknowledge the acceleration
needed to deliver these projects in time for 2030.
Using a location-based calculation approach5, this year our total direct and
indirect carbon emissions were 712,260Δ tonnes (2021 – 675,243 tonnes),
comprising direct emissions (Scope 1) of 554,476 tonnes (2021 – 536,963 tonnes)
and indirect (Scope 2) emissions of 157,784 tonnes (2021 – 138,280 tonnes). The
intensity ratio for this year was 168Δ grams per litre packaged (2021 – 175 grams
per litre packaged).5
Reduce our value chain (Scope 3)
carbon emissions by 50%2,3
SDG alignment: 7.2; 7.3; 7A; 12.6;
13.3; 17.16
Percentage reduction
in absolute GHG
(ktCO2e)
(4.7)%
(24.4)%
Use 100% renewable energy across
all our direct operations
SDG alignment: 7.2; 7A; 17.16
Percentage of
renewable energy
across our direct
operations
+4.6ppt
41.2%
Our target of reducing Scope 3 emissions by 50% by 2030 and achieving a net
zero value chain by 2050 or sooner led to a comprehensive review of our total
value chain footprint and associated emissions last year. We reset our baseline,
incorporating additional categories of upstream and downstream Scope 3
emissions6. This year, our Scope 3 emissions increased by 4.7%. This was mainly
due to increased production and the associated increased use of raw materials,
packaging, third-party operations and neutral-spirit sourcing. We recognise that
this target is challenging given the complexities of enabling impactful change up
and down the value chain, and that we will not meet our target unless we work
closely with suppliers, peers and others.
Renewable energy represented 41.2% of our total energy use this year, up 4.6ppt
on last year. This was driven by increases in our use of both renewable electricity
and renewable fuel and heat. As a signatory to RE100, we aim to source 100% of
our electricity from renewable sources by 2030. This year, 100% of our electricity
came from renewable sources in the UK, Europe, Turkey and South Africa, and
overall we achieved 83% (2021 – 66.4%), exceeding our interim 2025 target of
50% renewable electricity. This included sources such as solar, wind, hydro,
geothermal and biomass, generated on site and off site. Our overall increase this
year was due to the opening of a new distillery in Lebanon, North America, which
is entirely powered by renewable electricity; moving to renewable-backed
electricity supplies at our sites in Nigeria and Ghana; our operations in India and
Indonesia now sourcing more than 95% of their total energy from renewable
sources; and our new London head office being powered by 100% zero emission
renewable energy.
We are also continuing to invest in renewable electricity generation capacity,
creating ‘additionality’, which means we can add renewable energy generation
to the grid, and we have broken ground at our Leven packaging site in Scotland,
where we’re in the process of installing 9,000 solar PV panels, approximately
4.1MW of additional generation capacity.
1.
2.
Due to the sale of our Ethiopia business in fiscal 22, we now have 12 rather than 13 priority water basins
In line with our environmental reporting methodologies and the WRI/WBCSD GHG Protocol, baseline data for fiscal 20 and performance data for fiscal 21 have been restated to account
for acquisitions and divestments. Our reporting methodologies in the ESG Reporting Index outline how data has been compiled, including standards and assumptions used
3. Our targets to achieve net zero by 2030 in Scope 1 and 2 emissions, and our near-term Scope 3 target of 50% emissions reduction by 2030, were independently validated and approved
by the Science Based Targets initiative in September 2021
The sale of our Ethiopia business in fiscal 22 means that our emissions reductions for fiscal 21 have been restated, changing from a 5.1% decrease in GHG emissions to a 4.0% decrease
Please refer to our reporting methodologies in the ESG Reporting Index for more information on how we calculate location-based versus market-based emissions
A comprehensive review of Scope 3 categories has decreased the fiscal 20 baseline to 4.6MtCO2e
4.
5.
6.
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
Diageo Annual Report 2022
Diageo Annual Report 2022
37
37
Sustainability performance continued
Target by 2030
Fiscal 22 progress
Progress to date
Commentary
Pioneer grain-to-glass sustainability: Become sustainable by design
Achieve zero waste in our
direct operations and zero
waste to landfill in our supply
chain
SDG alignment: 12.5; 12.6
Percentage reduction in
total waste to landfill in
our direct operations
(tonnes)
(265)%Δ
90.6%
The total volume of waste diverted to landfill this year increased by 265% – to 168
tonnes (fiscal 21 – 46 tonnes) – equivalent to 0.02% of all waste, co-products and by-
products generated in our operations. At one of our facilities in Australia, waste
material was incorrectly diverted to landfill by a third-party contractor. This issue was
the principal cause of the year-on-year increase, and we are now working to address
it with the contractor. Despite the increase, our performance remains within the de
minimis threshold for zero waste and represents a 90.6% reduction on waste diverted
to landfill since our fiscal 20 baseline. We continue to focus on and work hard to
maintain zero waste to landfill1 at all our supply and office sites through ongoing
segregation of materials and close collaboration with our partners.
Turning to our supply chain, we also launched a global point-of-sale (POS) request for
proposal this year, focused on delivering our 2030 objectives and making a shift in
the industry. This should reduce the POS material we create and deliver a step
change in how we reduce the potential for landfill in our supply chain.
Percentage reduction of
total packaging (by
weight)
(16.2)%
(20.5)%
Continue our work to reduce
total packaging and
increase recycled content in
our packaging (delivering a
10% reduction in packaging
weight and increasing the
percentage recycled content
of our packaging to 60%)
SDG alignment: 12.5; 12.6
Percentage of recycled
content (by weight)
(2.6)ppt
Ensure 100% of our
packaging is widely
recyclable (or reusable/
compostable)
SDG alignment: 12.2; 12.6
Percentage of
packaging recyclable
(by weight)
99.9%
(Technically recyclable)
Achieve 40% average
recycled content in our
plastic bottles by 2025 (and
100% by 2030)2
SDG alignment: 12.5; 12.6
Percentage of recycled
content/percentage of
plastics used
(2.2)ppt
Ensure 100% of our plastics
is designed to be widely
recyclable (or reusable/
compostable) by 20252
SDG alignment: 12.5; 12.6
Provide all of our local
sourcing communities with
agricultural skills and
resources, building economic
and environmental resilience
(supporting 150,000
smallholder farmers)
SDG alignment: 2.3; 2.4; 8.3;
12.2; 12.3
Develop regenerative
agriculture pilot programmes
in five key sourcing
landscapes
SDG alignment: 15.2; 15.3;
15.5; 15A; 17.16
Percentage of
recyclable (or reusable/
compostable)/
percentage of plastic
used
+5.2ppt
Number of smallholder
farmers in our supply
chain supported by our
smallholder farmer
programme focused on
improving economic,
environmental and
social resilience
4,660
Number of regenerative
agriculture pilot
programmes active
1
40.2%
99.9%
3.2%
72.0%
4,660
1
In fiscal 22, packaging volume and weight increased because our global sales grew.
Nonetheless we remain committed to our targets. As part of our Diageo Sustainable
Solutions programme, we’re partnering with EXXERGY and Ardagh Group to pilot a
glass coating that has the potential to ‘light-weight’ our bottles without compromising
strength or shape – an industry first. We have also launched a programme to remove
cardboard gift boxes from our premium scotch portfolio, on brands such as Johnnie
Walker Black Label. In North America, we redesigned our corrugate cases, saving
around 82 tonnes of corrugate a year – one example of the incremental
improvements that we’re planning to roll out.
While we have made some positive changes in our portfolio, our percentage of
recycled content is down 2.6ppt to 40.2% because of a lack of available post-
consumer materials. Global material recovery rates and recycling centres have not yet
returned to their pre-Covid-19 operating levels, which has affected how much recycled
content is available to our supply chain. We have a number of projects in the pipeline
for fiscal 23 to help us address this issue.
This year 99.9% of our packaging was recyclable using the definition we’ve applied
historically – that is, technically recyclable. The remaining non-recyclable components
are currently not replaceable, although we continue to explore alternatives. We’re
working to create a universal definition of recyclable across the many markets we
operate in. We are following changing global legislation closely and, in fiscal 23, will
define a new approach to measuring recyclability that takes into account local
practices and recycling systems in some of our largest markets.
While our sales volumes have increased, our overall percentage of PET used – 1.3% of
our total packaging materials mix – has remained broadly constant. However, this
year the percentage of recycled content in our PET bottles reduced to 3.2% (fiscal 21 –
5.4%). We are partnering with our suppliers to improve and are conducting sampling
trials in Great Britain and North America with bottles that contain 30%, 50% and
100% recycled PET, across multiple brands and formats.
We’re encouraged by the improvement in recyclability of our plastics – now at 72% –
which is an increase of 5.2ppt on last year. This is primarily due to the discontinuation
of single-use plastics in certain markets, and an increase in the use of widely
recyclable plastics versus other plastic types. In Ghana, we partnered with local
authorities, investing in plastic buyback centres. Five centres were established this
year, helping to build a local circular economy for plastic recycling – and they have
already helped to recover 46 tonnes of plastic.
In this first year of reporting quantitatively against this target, we supported 4,660
smallholder farmers through our programme, which focuses on improving their
economic, environmental and social resilience. We do this by offering agricultural
training and providing farming essentials, such as fertilisers and certified high-quality
seeds. Where low yields and issues with quality significantly affect a smallholder
farmer’s income, we work with our suppliers, technical partners and research
organisations to build more resilient local supply chains. In Kenya and Ghana, for
example, we’re conducting on-farm trials to develop more climate-resilient and higher-
yielding sorghum varieties adapted to Kenya and Ghana, as well as investing in more
research and development.
During fiscal 22, we launched one regenerative agriculture pilot programme. Our
brand Guinness is working in Ireland with farmers of barley, one of our most important
ingredients. The pilot is based on an approach to farming that works in harmony with
nature. We expect this three-year farm-based programme to reveal opportunities to
reduce our carbon emissions in barley production, alongside other benefits including
enhanced biodiversity and soil health. We continue to develop roadmaps identifying
where and how we can support more regenerative agriculture programmes in other
parts of our agricultural supply chain. We're committed to partnerships with farmers to
help them implement regenerative projects that test new farming approaches and
practices, measure impacts and learnings.
1. Please refer to the reporting methodologies in our ESG Reporting Index for more information on how data has been compiled, including standards and assumptions used
2. Targets were introduced in 2018
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
38
38
Diageo Annual Report 2022
Diageo Annual Report 2022
Sustainability performance continued
Target by 2030
Fiscal 22 progress
Progress to date
Commentary
Pioneer grain-to-glass sustainability: Become sustainable by design
Achieve zero waste in our
direct operations and zero
Percentage reduction in
total waste to landfill in
waste to landfill in our supply
our direct operations
chain
SDG alignment: 12.5; 12.6
(tonnes)
(265)%Δ
90.6%
The total volume of waste diverted to landfill this year increased by 265% – to 168
tonnes (fiscal 21 – 46 tonnes) – equivalent to 0.02% of all waste, co-products and by-
products generated in our operations. At one of our facilities in Australia, waste
material was incorrectly diverted to landfill by a third-party contractor. This issue was
the principal cause of the year-on-year increase, and we are now working to address
it with the contractor. Despite the increase, our performance remains within the de
minimis threshold for zero waste and represents a 90.6% reduction on waste diverted
to landfill since our fiscal 20 baseline. We continue to focus on and work hard to
maintain zero waste to landfill1 at all our supply and office sites through ongoing
segregation of materials and close collaboration with our partners.
Turning to our supply chain, we also launched a global point-of-sale (POS) request for
proposal this year, focused on delivering our 2030 objectives and making a shift in
the industry. This should reduce the POS material we create and deliver a step
change in how we reduce the potential for landfill in our supply chain.
In fiscal 22, packaging volume and weight increased because our global sales grew.
Nonetheless we remain committed to our targets. As part of our Diageo Sustainable
Solutions programme, we’re partnering with EXXERGY and Ardagh Group to pilot a
glass coating that has the potential to ‘light-weight’ our bottles without compromising
strength or shape – an industry first. We have also launched a programme to remove
cardboard gift boxes from our premium scotch portfolio, on brands such as Johnnie
Walker Black Label. In North America, we redesigned our corrugate cases, saving
around 82 tonnes of corrugate a year – one example of the incremental
improvements that we’re planning to roll out.
While we have made some positive changes in our portfolio, our percentage of
recycled content is down 2.6ppt to 40.2% because of a lack of available post-
consumer materials. Global material recovery rates and recycling centres have not yet
returned to their pre-Covid-19 operating levels, which has affected how much recycled
content is available to our supply chain. We have a number of projects in the pipeline
for fiscal 23 to help us address this issue.
This year 99.9% of our packaging was recyclable using the definition we’ve applied
historically – that is, technically recyclable. The remaining non-recyclable components
are currently not replaceable, although we continue to explore alternatives. We’re
working to create a universal definition of recyclable across the many markets we
operate in. We are following changing global legislation closely and, in fiscal 23, will
define a new approach to measuring recyclability that takes into account local
practices and recycling systems in some of our largest markets.
While our sales volumes have increased, our overall percentage of PET used – 1.3% of
our total packaging materials mix – has remained broadly constant. However, this
year the percentage of recycled content in our PET bottles reduced to 3.2% (fiscal 21 –
5.4%). We are partnering with our suppliers to improve and are conducting sampling
trials in Great Britain and North America with bottles that contain 30%, 50% and
100% recycled PET, across multiple brands and formats.
We’re encouraged by the improvement in recyclability of our plastics – now at 72% –
which is an increase of 5.2ppt on last year. This is primarily due to the discontinuation
of single-use plastics in certain markets, and an increase in the use of widely
recyclable plastics versus other plastic types. In Ghana, we partnered with local
authorities, investing in plastic buyback centres. Five centres were established this
year, helping to build a local circular economy for plastic recycling – and they have
already helped to recover 46 tonnes of plastic.
In this first year of reporting quantitatively against this target, we supported 4,660
smallholder farmers through our programme, which focuses on improving their
economic, environmental and social resilience. We do this by offering agricultural
training and providing farming essentials, such as fertilisers and certified high-quality
seeds. Where low yields and issues with quality significantly affect a smallholder
farmer’s income, we work with our suppliers, technical partners and research
organisations to build more resilient local supply chains. In Kenya and Ghana, for
example, we’re conducting on-farm trials to develop more climate-resilient and higher-
yielding sorghum varieties adapted to Kenya and Ghana, as well as investing in more
research and development.
During fiscal 22, we launched one regenerative agriculture pilot programme. Our
brand Guinness is working in Ireland with farmers of barley, one of our most important
ingredients. The pilot is based on an approach to farming that works in harmony with
nature. We expect this three-year farm-based programme to reveal opportunities to
reduce our carbon emissions in barley production, alongside other benefits including
enhanced biodiversity and soil health. We continue to develop roadmaps identifying
where and how we can support more regenerative agriculture programmes in other
parts of our agricultural supply chain. We're committed to partnerships with farmers to
help them implement regenerative projects that test new farming approaches and
practices, measure impacts and learnings.
Continue our work to reduce
Percentage reduction of
total packaging and
total packaging (by
weight)
(16.2)%
increase recycled content in
our packaging (delivering a
10% reduction in packaging
weight and increasing the
percentage recycled content
of our packaging to 60%)
SDG alignment: 12.5; 12.6
Percentage of recycled
content (by weight)
(2.6)ppt
Ensure 100% of our
packaging is widely
Percentage of
packaging recyclable
recyclable (or reusable/
(by weight)
compostable)
SDG alignment: 12.2; 12.6
99.9%
(Technically recyclable)
Achieve 40% average
recycled content in our
Percentage of recycled
content/percentage of
plastic bottles by 2025 (and
plastics used
100% by 2030)2
SDG alignment: 12.5; 12.6
(2.2)ppt
(20.5)%
40.2%
99.9%
3.2%
Ensure 100% of our plastics
Percentage of
is designed to be widely
recyclable (or reusable/
compostable) by 20252
SDG alignment: 12.5; 12.6
recyclable (or reusable/
compostable)/
percentage of plastic
72.0%
used
+5.2ppt
Provide all of our local
sourcing communities with
agricultural skills and
Number of smallholder
farmers in our supply
chain supported by our
resources, building economic
smallholder farmer
and environmental resilience
programme focused on
(supporting 150,000
smallholder farmers)
SDG alignment: 2.3; 2.4; 8.3;
12.2; 12.3
improving economic,
environmental and
social resilience
4,660
Develop regenerative
Number of regenerative
agriculture pilot programmes
agriculture pilot
programmes active
in five key sourcing
landscapes
SDG alignment: 15.2; 15.3;
15.5; 15A; 17.16
1
4,660
1
1. Please refer to the reporting methodologies in our ESG Reporting Index for more information on how data has been compiled, including standards and assumptions used
2. Targets were introduced in 2018
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index
Doing business the right way
from grain to glass
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
At Diageo, we always aim to do the right thing, in the right way. We embed
human rights in our people’s working day. We strive to improve health, safety
and wellbeing, understanding that no level of accidents is acceptable. And we
make compliance and business integrity non-negotiable.
Respect for human rights – part of everyone’s
working day
We aim to create an environment where people feel they are treated
fairly and with respect. We work hard to ensure we do not infringe their
human rights, and that we’re not complicit with others who do. We
expect everyone we work with to adopt our principles and to uphold
our standards.
We have a well-developed policy framework that covers our
responsibilities to protect the human rights of those working in our
direct operations, as well as in our value chain and communities.
Our policies are aligned to all relevant internationally recognised laws,
regulations and voluntary guidelines.
As part of our ongoing commitment to the UN Guiding Principles on
Business and Human Rights (UNGP), we’ve updated our human rights
governance framework in line with current best practice. We will
continue to embed human rights in our enterprise risk management
processes and to enhance our policies, standards and disclosures.
Strengthening our approach to human rights
As well as adhering to the rights called out in the International Labour
Organization’s (ILO) Declaration on Fundamental Principles and Rights
at Work, our own Human Rights Impact Assessments (HRIAs) identified
three external risks as particularly salient to our business and supply
chain: labour rights, including the risk of child labour, especially in
agricultural supply networks; labour standards for contract workers;
and sexual harassment in the hospitality sector.
We have acted in response. For example, we’ve created awareness
programmes focussed on child protection, and training for a variety of
internal and external stakeholders on modern slavery risks. We have
also developed standards and training in all our markets, aimed at
protecting brand promotion teams from harassment.
In addition, we have started to embed the detailed findings and
recommendations from our market HRIAs into our routine enterprise
risk management processes. This will help us to continue to intervene
when required, and allow us to track emerging risks.
We measure the effectiveness of our human rights governance through
monitoring breach allegation trends and root causes. We’re also
enhancing our internal assurance framework to identify opportunities
for strengthening our approach. And we’re using lessons learned from
our interventions to drive continuous improvement. For example, we’re
creating an online version of our Global Brand Promoter Standard
training to make it easier for people to take part, and for us to track
how many have completed it.
We describe our human rights approach and performance in more
detail in our ESG Reporting Index. We publish our Modern Slavery
Statement on our website.
Health and safety matters
Our global health and safety strategy focusses on wellbeing and
safety. Critically, our Zero Harm programme is designed to ensure
that everyone goes home safe and healthy, every day, everywhere.
We have a dedicated expert team that creates and frequently reviews
our policies and standards – providing a roadmap that enables every
employee, irrespective of their role, to work as safely as possible.
Our total recordable accident frequency rate (TRAFR) takes into
account injuries that require more than first aid. We investigate each
recordable incident thoroughly to establish the root cause, to provide
insights that are used to mitigate the risk of further incidents and to
reinforce our policies and standards. The learnings from each incident
are shared with governance and site leaders in dedicated sessions.
This year we achieved our global target of 3.5 or lower, with a rate of
2.18. This is slightly higher than last year (1.98).
We also report lost-time accident frequency rate (LTAFR). After
sustaining more than one LTA per 1,000 employees in fiscal 21 for the
first time in three years, this year the LTA frequency rate decreased
from 1.03 to 0.92∆. We achieved this improvement by deploying
focussed interventions in North America and Europe, which had a high
level of incidents in 2021. The severity rate of these LTAs, which is a
measure of the seriousness of the incident and consequent absence
from work, decreased by 13.9% globally.
‘Lagging indicators’ like TRAFRs and LTAFRs are traditional metrics
used to indicate progress towards compliance with safety rules.
The challenge with using only these to measure safety performance
is that they don’t indicate how well we’re preventing incidents and
accidents. To partially address this challenge we have adopted a key
‘leading indicator’, severe injury and fatality potential (SIFP), which
specifically considers all incidents and near-misses and their potential
to cause life-threatening or life-altering outcomes. Every month senior
management reviews performance of this indicator, as well as any
learnings and improvements to help prevent similar incidents in
future. Over the next three years, our focus on both leading and
lagging indicators will provide more opportunities to prevent
incidents and accidents.
There is no acceptable level of accidents, which is why we encourage
safe behaviour among all our people. We will continue to identify and
implement the best available health and safety practices, technologies
and systems – providing our employees with the most up-to-date health
and safety skills and knowledge so that they can always carry out their
roles safely.
We remain committed to working with our contractors and third-
party providers to ensure they are equally committed to ensuring
everyone goes home safe and healthy, every day, everywhere.
38
38
Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
39
Sustainability performance continued
Making health and safety an engaging experience
In 2022 we launched a new communication strategy for health
and safety and now have a dedicated intranet site with a
learning channel. Our new Yammer social networking group
enhances visibility of updates, meaning employees can access
the latest health and safety news and are signposted to existing
and new content. These digital channels make it easier for us to
share learnings across the business, helping build a better health
and safety culture.
For this culture to succeed, employee engagement is critical. It’s
why we’ve refreshed our health and safety brand and vision –
to have a world-class, high-performing health and safety culture,
where everyone, everywhere is safer together when working on
site, at home and on the road.
2022 safety data by region
Region
North America
Europe
Asia Pacific
Africa
Latin America and
Caribbean
Diageo (total)
Employee
LTA rate
1.85
1.09
0.59
1.01
Employee
TRA rate
4.33
2.89
1.17
1.75
Independent
contractor
LTAs1
1
12
2
8
Employee
LTAs
5
11
7
8
Fatalities2
0
0
0
0
0.61
0.92Δ
3.44
2.18
4
27
2
33
0
0
1. We do not report an LTA rate for independent contractors due to the difficulty and
administrative burden in accurately recording headcount
2. Fatalities include any employee work-related fatality arising in their day-to-day work
environment, or any work-related fatalities occurring to third parties and contractors
(non full-time employees) while on Diageo’s premises
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For
further detail and the reporting methodologies, see our ESG Reporting Index.
Improving our people’s safety on the roads
We want our employees everywhere to be safer when working
on site, at home and on the road. Our Severe and Fatal Incident
Prevention Programme – a core component of our health and
safety strategy – helps us to achieve that. It protects our people
and our reputation by preventing serious injuries and fatalities
across our business.
As part of our Driving on Roads programme, we focus on driver
behaviour and capability. In Africa, we’ve launched a bespoke
driving capability programme featuring e-learning training
modules around risks of driving on the road as well as business
policies, standards and best practices. In Europe we’ve
successfully embedded a best-in-class driver capability
programme that identifies and tailors training based on an
individual’s driving behaviour. The programme aims to prevent
employees from becoming complacent with their driving.
We anticipate that these initiatives will improve drivers’
capabilities and behaviours, and ultimately reduce road
traffic accidents and our insurance premium rates.
Business integrity
We remain committed to operating in the right way in everything we
do. Compliance with our Code of Business Conduct and conducting
our business with integrity are non-negotiable, and our approach to risk
and compliance helps us go beyond the basics to encourage the right
behaviours and attitudes every day, everywhere.
Our global Code of Business Conduct, available in 20 languages, sets
out what we stand for as a company and how we operate, so all our
employees understand what is required of them in working for Diageo.
We undertake annual mandatory global training on our Code of
Business Conduct and key global policies, which includes an Annual
Certification of Compliance (ACC) for all managers and their direct
reports, encompassing a total of 15,522 eligible employees.
Global training is delivered to all Diageo employees in an easily
accessible e-learning format, with classroom training delivered to
those employees who do not have regular access to a computer.
Another area of potential compliance risk is out interaction with third
parties. Our Know Your Business Partner programme is designed to
help us evaluate the risk of doing business with a third party before
entering a contractual relationship, as well as help us to monitor any
changes during our interactions. This year we refreshed our third-party
risk programme to include additional mitigation of the increased risk of
economic sanctions. We assess all our business partners for potential
economic sanctions and compliance risks such as bribery and
corruption, money laundering, facilitation of tax evasion, data privacy
or other reputational red flags. We carry out additional due diligence
processes for those parties that pose a potentially higher risk. Our
global business integrity team oversees the programme and regularly
reviews its effectiveness.
We encourage our employees, and anyone we do business with, to
raise concerns about potential breaches of our Code of Business
Conduct or policies. Our confidential whistleblowing helpline, SpeakUp,
is available via phone or web portal, enabling anyone in or beyond
Diageo to report a concern. Additionally, we encourage employees
to come forward to their line manager; their legal or HR partners; risk
and compliance teams; or business integrity partners.
This year 635 allegations of breaches were reported. While we saw
an increase in allegations versus last year, we are noting that the
reporting levels are recovering to pre-pandemic levels due to the return
to offices. The substantiation rate of allegations has slightly decreased
compared to last year, with 30% of cases confirmed as a breach
(versus 39% in fiscal 21).
All allegations are taken seriously and investigated, and action is
taken where necessary. We monitor all breaches to identify trends
and root causes.
As of the end of fiscal 22, 54 people exited the business as a
result of breaches of our Code of Business Conduct or policies
(fiscal 21: 63 people). This is due to a reduction in severity and
type of breaches this year.
The number of leavers for fiscal 21 has been restated due to a number
of open cases from fiscal 21 being concluded this year. At the end of
fiscal 22, we had 113 open cases, which may lead to more people
exiting the business.
Reported and substantiated breaches
2020
79
385
243
2021
657
487
280
191
63
2022
156
54
635
433
Reported
Reported through SpeakUp
Sustantiated breaches
Code-related leavers
40
Diageo Annual Report 2022
Sustainability performance continued
Making health and safety an engaging experience
In 2022 we launched a new communication strategy for health
and safety and now have a dedicated intranet site with a
learning channel. Our new Yammer social networking group
enhances visibility of updates, meaning employees can access
the latest health and safety news and are signposted to existing
and new content. These digital channels make it easier for us to
share learnings across the business, helping build a better health
and safety culture.
For this culture to succeed, employee engagement is critical. It’s
why we’ve refreshed our health and safety brand and vision –
to have a world-class, high-performing health and safety culture,
where everyone, everywhere is safer together when working on
site, at home and on the road.
2022 safety data by region
Region
North America
Europe
Asia Pacific
Africa
Latin America and
Caribbean
Diageo (total)
Employee
LTA rate
Employee
TRA rate
Independent
contractor
Employee
LTAs1
LTAs
Fatalities2
1.85
1.09
0.59
1.01
0.61
0.92Δ
4.33
2.89
1.17
1.75
3.44
2.18
1
12
2
8
4
27
5
11
7
8
2
33
0
0
0
0
0
0
1. We do not report an LTA rate for independent contractors due to the difficulty and
administrative burden in accurately recording headcount
2. Fatalities include any employee work-related fatality arising in their day-to-day work
environment, or any work-related fatalities occurring to third parties and contractors
(non full-time employees) while on Diageo’s premises
Δ Within PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For
further detail and the reporting methodologies, see our ESG Reporting Index.
Improving our people’s safety on the roads
We want our employees everywhere to be safer when working
on site, at home and on the road. Our Severe and Fatal Incident
Prevention Programme – a core component of our health and
safety strategy – helps us to achieve that. It protects our people
and our reputation by preventing serious injuries and fatalities
across our business.
As part of our Driving on Roads programme, we focus on driver
behaviour and capability. In Africa, we’ve launched a bespoke
driving capability programme featuring e-learning training
modules around risks of driving on the road as well as business
policies, standards and best practices. In Europe we’ve
successfully embedded a best-in-class driver capability
programme that identifies and tailors training based on an
individual’s driving behaviour. The programme aims to prevent
employees from becoming complacent with their driving.
We anticipate that these initiatives will improve drivers’
capabilities and behaviours, and ultimately reduce road
traffic accidents and our insurance premium rates.
Business integrity
We remain committed to operating in the right way in everything we
do. Compliance with our Code of Business Conduct and conducting
our business with integrity are non-negotiable, and our approach to risk
and compliance helps us go beyond the basics to encourage the right
behaviours and attitudes every day, everywhere.
Our global Code of Business Conduct, available in 20 languages, sets
out what we stand for as a company and how we operate, so all our
employees understand what is required of them in working for Diageo.
We undertake annual mandatory global training on our Code of
Business Conduct and key global policies, which includes an Annual
Certification of Compliance (ACC) for all managers and their direct
reports, encompassing a total of 15,522 eligible employees.
Global training is delivered to all Diageo employees in an easily
accessible e-learning format, with classroom training delivered to
those employees who do not have regular access to a computer.
Another area of potential compliance risk is out interaction with third
parties. Our Know Your Business Partner programme is designed to
help us evaluate the risk of doing business with a third party before
entering a contractual relationship, as well as help us to monitor any
changes during our interactions. This year we refreshed our third-party
risk programme to include additional mitigation of the increased risk of
economic sanctions. We assess all our business partners for potential
economic sanctions and compliance risks such as bribery and
corruption, money laundering, facilitation of tax evasion, data privacy
or other reputational red flags. We carry out additional due diligence
processes for those parties that pose a potentially higher risk. Our
global business integrity team oversees the programme and regularly
reviews its effectiveness.
We encourage our employees, and anyone we do business with, to
raise concerns about potential breaches of our Code of Business
Conduct or policies. Our confidential whistleblowing helpline, SpeakUp,
is available via phone or web portal, enabling anyone in or beyond
Diageo to report a concern. Additionally, we encourage employees
to come forward to their line manager; their legal or HR partners; risk
and compliance teams; or business integrity partners.
This year 635 allegations of breaches were reported. While we saw
an increase in allegations versus last year, we are noting that the
reporting levels are recovering to pre-pandemic levels due to the return
to offices. The substantiation rate of allegations has slightly decreased
compared to last year, with 30% of cases confirmed as a breach
(versus 39% in fiscal 21).
All allegations are taken seriously and investigated, and action is
taken where necessary. We monitor all breaches to identify trends
and root causes.
As of the end of fiscal 22, 54 people exited the business as a
result of breaches of our Code of Business Conduct or policies
(fiscal 21: 63 people). This is due to a reduction in severity and
type of breaches this year.
The number of leavers for fiscal 21 has been restated due to a number
of open cases from fiscal 21 being concluded this year. At the end of
fiscal 22, we had 113 open cases, which may lead to more people
exiting the business.
Reported and substantiated breaches
2020
79
385
243
657
487
2021
63
280
191
2022
156
54
635
Reported
433
Reported through SpeakUp
Sustantiated breaches
Code-related leavers
40
Diageo Annual Report 2022
Our ESG reporting approach
Reporting transparently on the environmental, social and governance
(ESG) issues that affect our business and that our business creates,
plays a vital role in delivering our strategy. It helps us to manage
ESG risks, seize opportunities and promote sustainable development
everywhere we live, work, source and sell.
Our ESG reporting suite aims to provide comprehensive and
comparable disclosures for a broad range of stakeholders.
As well as publishing our integrated Annual Report and ESG
Reporting Index at the year end, we also submit non-financial
information to benchmarking and index organisations throughout
the year, including those listed in our ESG Reporting Index.
The non-financial reporting space is evolving quickly. We are
committed to continual evaluation and improvement of our
approach and to actively tracking emerging ESG frameworks
and good practice.
How we report to our stakeholders – our reporting suite
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Annual Report Where we present our most
material disclosures and describe how our
strategy delivers value for our business and
other stakeholders.
Diageo.com Where, through the ‘Society
2030: Spirit of Progress’ section, we give
further details of our approach and
performance, with examples of our strategy
in action.
ESG Reporting Index Where we give
additional disclosures in line with the GRI
Standards and the UNGC advanced
reporting criteria index; plus our response
to the Sustainability Accounting Standards
Board (SASB). This document also includes
detailed non-financial reporting boundaries
and methodologies.
Who are our stakeholders? Everyone who is affected by our business, and everyone who affects it, is a stakeholder. A detailed description of our
stakeholder engagement process is on pages 92-94 of this Annual Report.
Non-financial information statement
Focus area
Promote positive drinking
Relevant policies and standards
Read more in this report
• Marketing and Digital Marketing Policy
• Employee Alcohol Global Policy
• Position papers
• Promote positive drinking
• Performing against our 2030 targets
Champion inclusion and diversity
Our people
• Code of Business Conduct
• 2021 Gender Pay Gap Report
• Human Rights Global Policy
Pioneer grain-to-glass sustainability
Human rights
• Environmental Global Policy
• Sustainable Agriculture Guidelines
• Sustainable Packaging Commitments
• Partnering with Suppliers Standard
• Deforestation Guidelines
• Human Rights Global Policy
• Modern Slavery Statement
• Global Brand Promoter Standard
• Champion inclusion and diversity
• Our people
• Performing against our 2030 targets
• Pioneer grain-to-glass sustainability
• Performing against our 2030 targets
• Responding to climate-related risks
• Doing business the right way from
39
grain to glass
Health and safety
• Health, Safety and Wellbeing
• Doing business the right way from
39-40
Global Policy
grain to glass
Anti-bribery and corruption
• Code of Business Conduct
• Doing business the right way from
40
Our contribution to
the UN Sustainable
Development Goals
grain to glass
• Performing against our 2030 targets
35-38
Diageo Annual Report 2022
41
Page
26-27
35-38
28-29
18
35-38
30-31
35-38
47-56
Our principal risks and risk management
Effective risk
management
Well-managed risk-taking lies at the
heart of our Performance Ambition.
Effective risk management drives better
commercial decisions, protects our assets
and supports a growing, resilient and
sustainable business.
Our approach
We believe that effective risk management starts with the right
conversations to drive better business decisions. Our primary focus is
to identify and embed mitigating actions for material risks that could
impact our current or future performance, and/or our reputation.
Our risk management efforts aim to be holistic and integrated, bringing
together risk management, internal controls and business integrity,
ensuring that our activities across this agenda focus on the risks that
could have the greatest impact. We have recently reviewed and
refreshed our principal risks, our risk appetite and our approach to risk
management. Our approach is also structured to ensure that we take
all reasonable steps to mitigate, but not necessarily eliminate, our
principal risks in this context.
Accountability for managing risk is embedded into our management
structures. Each market and function undertakes an annual risk
assessment, establishes mitigation plans and monitors risk on a
continual basis.
Our Executive Audit & Risk Committee (ARC) regularly assesses risk,
and the Audit Committee (AC) independently reviews the assessment.
The ARC meets quarterly and receives regular reports on the risks
faced across the business and the effectiveness of the actions taken
to mitigate these risks. We use internal and external data to monitor
our risks and to make proactive interventions. We also establish
cross-functional working groups and use expert advice, where
necessary, to ensure significant risks are effectively managed and,
where appropriate, escalated to the ARC and Audit Committee
for consideration.
Further details about our risk management approach are described
in the Corporate governance report on page 87 and in the Audit
Committee report on pages 99-103
Our principal risks
The Board considers principal risks to be the most significant risks
faced by the group, including those that are the most material to our
performance and that could threaten our business model or future
long-term performance, solvency or liquidity. They do not comprise all
the risks associated with our business and are not set out in priority
order. Additional risks not known to management, or currently deemed
to be less material, may also have an adverse effect on the business.
This year’s annual review of our principal risk descriptions has resulted
in a number of changes. We have combined risks as a result of aligned
cause and effect, while simplifying others. All principal risks have
updated descriptions, risk outlooks and mitigating actions.
Our overall risk footprint reflects significant external threats, such as
geopolitical risks, climate change, digital revolution, and the resulting
impact of global uncertainty in many areas. The pandemic risk was
elevated from an emerging risk last year. The risk associated with
Covid-19 is better understood, however the risk of a new pandemic is
42
Diageo Annual Report 2022
possible. This year, we have combined the risk of a pandemic with
a business interruption risk. We have also merged Geopolitical and
Macroeconomic volatility, and Product quality and counterfeit, and
have incorporated Data Privacy as part of the overall Business ethics
& Integrity risk.
This year, we have elevated Supply chain disruption as a separate
principal risk.
Update on our response to the Covid-19 pandemic and ongoing
supply chain disruption
The pandemic continues to cause disruption in regions across the
world, contributing to a heightened level of uncertainty. Vaccination
rollouts are at all-time highs in many markets, and our understanding
and agility in responding to and managing through volatility has
grown. Our ongoing mitigations and developments concerning the
Pandemic & Business interruption risk are articulated in the principal
risk section below.
Supply chain disruption has emerged as a risk of significant global
impact. Ongoing geopolitical issues, increasing inflation, strict regional
responses to Covid-19 outbreaks, in addition to heightened demand for
raw and packaging materials, has led to ongoing constraints, longer
lead times and increased costs. We continue to improve our levels of
resilience across our end-to-end supply chain, while continuously
monitoring the external landscape and responding with agility.
Risk appetite
This year, we have progressed our approach to the assessment of
principal risks, and risk appetite. The ARC and the Audit Committee
have defined the group’s risk appetite across our risk categories
(Strategic, Financial, Operational and Regulatory). A three-point risk
appetite scale (Averse, Cautious and Open) and appetite ratings have
been applied, using both quantitative and qualitative criteria that
align to the delivery of our Performance Ambition. This category-led
approach enables practical application of risk appetite thresholds to all
business risks, which informs the level of mitigation required. Examples
of risks for which we have an averse appetite include risks that could:
harm our people; impact product quality; cause us to market
irresponsibly or act without integrity; and be non-compliant with laws
and regulations, including those relating to financial reporting.
Risks that can be partially mitigated through insurance are also
identified and evaluated. We focus our insurance resources on the
most critical areas or where there is a legal requirement, seeking a
balance between retained risk and risk transfer. As insurance markets
are getting tighter, this is an area we continue to monitor.
Emerging risks
The ARC and Audit Committee formally review emerging risks. Our
Corporate Strategy and Enterprise Risk Management teams undertake
horizon-scanning to monitor any potential disruptions that could
dramatically change our industry and/or our business, from both a
risk and opportunity perspective, for the Executive to understand the
changing landscape and take appropriate actions.
We perform scenario planning and draw on external thinking and
research to consider the changes around us, to understand how our
risk profile could change over a longer period. Emerging risks we are
monitoring include the changing socio-economic landscape.
The changing socio-economic landscape
The human and economic cost of the pandemic has been significant,
leading to increased poverty and unemployment levels, which have
been compounded by further geopolitical instability and sharp global
cost inflation. These factors and others are contributing to increased
social inequalities and a widening of the wealth gap between
demographics. Whilst we cannot completely mitigate the impact of this
risk, we continue to monitor this changing socio-economic landscape,
its impact on our consumer base and their buying preferences, and the
development of our pricing strategies accordingly.
Our principal risks and risk management
Effective risk
management
Well-managed risk-taking lies at the
heart of our Performance Ambition.
Effective risk management drives better
commercial decisions, protects our assets
and supports a growing, resilient and
sustainable business.
Our approach
We believe that effective risk management starts with the right
conversations to drive better business decisions. Our primary focus is
to identify and embed mitigating actions for material risks that could
impact our current or future performance, and/or our reputation.
Our risk management efforts aim to be holistic and integrated, bringing
together risk management, internal controls and business integrity,
ensuring that our activities across this agenda focus on the risks that
could have the greatest impact. We have recently reviewed and
refreshed our principal risks, our risk appetite and our approach to risk
management. Our approach is also structured to ensure that we take
all reasonable steps to mitigate, but not necessarily eliminate, our
principal risks in this context.
Accountability for managing risk is embedded into our management
structures. Each market and function undertakes an annual risk
assessment, establishes mitigation plans and monitors risk on a
continual basis.
Our Executive Audit & Risk Committee (ARC) regularly assesses risk,
and the Audit Committee (AC) independently reviews the assessment.
The ARC meets quarterly and receives regular reports on the risks
faced across the business and the effectiveness of the actions taken
to mitigate these risks. We use internal and external data to monitor
our risks and to make proactive interventions. We also establish
cross-functional working groups and use expert advice, where
necessary, to ensure significant risks are effectively managed and,
where appropriate, escalated to the ARC and Audit Committee
for consideration.
Further details about our risk management approach are described
in the Corporate governance report on page 87 and in the Audit
Committee report on pages 99-103
Our principal risks
The Board considers principal risks to be the most significant risks
faced by the group, including those that are the most material to our
performance and that could threaten our business model or future
long-term performance, solvency or liquidity. They do not comprise all
the risks associated with our business and are not set out in priority
order. Additional risks not known to management, or currently deemed
to be less material, may also have an adverse effect on the business.
This year’s annual review of our principal risk descriptions has resulted
in a number of changes. We have combined risks as a result of aligned
cause and effect, while simplifying others. All principal risks have
updated descriptions, risk outlooks and mitigating actions.
Our overall risk footprint reflects significant external threats, such as
geopolitical risks, climate change, digital revolution, and the resulting
impact of global uncertainty in many areas. The pandemic risk was
elevated from an emerging risk last year. The risk associated with
Covid-19 is better understood, however the risk of a new pandemic is
42
Diageo Annual Report 2022
possible. This year, we have combined the risk of a pandemic with
a business interruption risk. We have also merged Geopolitical and
Macroeconomic volatility, and Product quality and counterfeit, and
have incorporated Data Privacy as part of the overall Business ethics
This year, we have elevated Supply chain disruption as a separate
& Integrity risk.
principal risk.
Update on our response to the Covid-19 pandemic and ongoing
supply chain disruption
The pandemic continues to cause disruption in regions across the
world, contributing to a heightened level of uncertainty. Vaccination
rollouts are at all-time highs in many markets, and our understanding
and agility in responding to and managing through volatility has
grown. Our ongoing mitigations and developments concerning the
Pandemic & Business interruption risk are articulated in the principal
risk section below.
Supply chain disruption has emerged as a risk of significant global
impact. Ongoing geopolitical issues, increasing inflation, strict regional
responses to Covid-19 outbreaks, in addition to heightened demand for
raw and packaging materials, has led to ongoing constraints, longer
lead times and increased costs. We continue to improve our levels of
resilience across our end-to-end supply chain, while continuously
monitoring the external landscape and responding with agility.
Risk appetite
This year, we have progressed our approach to the assessment of
principal risks, and risk appetite. The ARC and the Audit Committee
have defined the group’s risk appetite across our risk categories
(Strategic, Financial, Operational and Regulatory). A three-point risk
appetite scale (Averse, Cautious and Open) and appetite ratings have
been applied, using both quantitative and qualitative criteria that
align to the delivery of our Performance Ambition. This category-led
approach enables practical application of risk appetite thresholds to all
business risks, which informs the level of mitigation required. Examples
of risks for which we have an averse appetite include risks that could:
harm our people; impact product quality; cause us to market
irresponsibly or act without integrity; and be non-compliant with laws
and regulations, including those relating to financial reporting.
Risks that can be partially mitigated through insurance are also
identified and evaluated. We focus our insurance resources on the
most critical areas or where there is a legal requirement, seeking a
balance between retained risk and risk transfer. As insurance markets
are getting tighter, this is an area we continue to monitor.
Emerging risks
The ARC and Audit Committee formally review emerging risks. Our
Corporate Strategy and Enterprise Risk Management teams undertake
horizon-scanning to monitor any potential disruptions that could
dramatically change our industry and/or our business, from both a
risk and opportunity perspective, for the Executive to understand the
changing landscape and take appropriate actions.
We perform scenario planning and draw on external thinking and
research to consider the changes around us, to understand how our
risk profile could change over a longer period. Emerging risks we are
monitoring include the changing socio-economic landscape.
The changing socio-economic landscape
The human and economic cost of the pandemic has been significant,
leading to increased poverty and unemployment levels, which have
been compounded by further geopolitical instability and sharp global
cost inflation. These factors and others are contributing to increased
social inequalities and a widening of the wealth gap between
demographics. Whilst we cannot completely mitigate the impact of this
risk, we continue to monitor this changing socio-economic landscape,
its impact on our consumer base and their buying preferences, and the
development of our pricing strategies accordingly.
This list does not include all of our risks, and the risks listed are not set out in order of priority.
Risk and impact
Mitigation plans
1. CLIMATE CHANGE &
SUSTAINABILITY
EG
CVC
CT
EP
V
Physical and transition climate
change risks, including water
stress, extreme weather events,
temperature rises and increased
regulation, may result in increased
volatility in the supply of raw
materials, production costs, capacity
constraints and higher costs of
compliance. In addition, the failure
to meet sustainability goals could
result in loss of licence to operate,
financial loss and reputational
damage amongst customers,
consumers, investors and
other stakeholders.
2. REGULATION, TRADE
BARRIERS AND INDIRECT
TAX
EG
CVC
CT
V
Public health concerns may lead
regulators in major markets to ban
or restrict the marketing or sale of
alcohol, while increased trade
tensions and/or fiscal pressures
may prompt the introduction of trade
barriers and/or disproportionate tax
increases, all of which may result in
financial loss.
3. PANDEMIC AND
BUSINESS INTERRUPTION
EG
CVC
CT
EP
V
A significant interruption to
our business due to external events
(such as a public health threat/
pandemic, war or natural hazard)
could restrict access to our products,
negatively affect our operations and
brands, or pose a threat to the safety
of our employees; any of which
could have a negative impact
on our commercial and
financial performance.
Ongoing mitigations
• Resource-scarcity issues identified and mitigated, especially within agricultural
ingredient sourcing, and manufacturing, water and energy
• Physical risk exposures identified for sites assessed in North America and Scotland,
and built into site risk footprints
• ‘Society 2030: Spirit of Progress’ ambition launched and operationalised to
deliver against key targets and longer-term goals.
• Water blueprint defined and operationalised in water-stressed locations
• Communication programmes in place to share impact, strengthen reputation
and support advocacy platform
• Carbon pricing being assessed as an internal mechanism to drive deeper
understanding of the impact of our energy choices
Developments in 2022
• Progress against our ‘Society 2030: Spirit of Progress’ targets (see pages 30-31).
• Further multi-year climate change risk assessments and scenario analysis
performed to evaluate short- and long-term impacts from physical and
transition risks
• The cross-functional Climate Risk Steering Group sets our strategy for ongoing
climate risk assessment, and manages associated opportunities and risks,
while continuing to develop our approach to climate change risk reporting.
(see page 47)
• We have increased resource dedicated to the mitigation of climate impact within
our sustainability, sourcing and finance teams
Ongoing mitigations
• We run multi-year public policy campaigns to minimise risk and unlock tax, trade
and regulatory opportunities
• We have active involvement with the United Kingdom, the European Union and
the United States authorities to prevent escalation of tariff tensions
• Our positive drinking programmes are supported by a global industry platform
to promote responsible drinking and tackle spirits discrimination
• We practise evidence-based engagement to build trust and reputation with
governments, health ministries and other stakeholders
Developments in 2022
• The geopolitical situation in Europe, with the Russian invasion of Ukraine, continues
to impact business. Having initially suspended all shipping and trading to Russia
and Belarus, we have now taken the decision to wind down our business
operations in these markets
• We continue to prioritise the execution of public policy campaigns in all markets,
to minimise risks and unlock tax, trade and regulatory opportunities
Ongoing mitigations
• Policies and processes are in place to prioritise the health and safety of our people
• Global crisis management and business continuity management programmes, and
training, are in place to enhance our capability to react effectively to a crisis, and
minimise damage and disruption
• Multi-channel product availability enables consumers to continue to purchase
our products
• Global diversification enables the manufacturing of some of our products across
various sites, thereby reducing dependency
• Insurance programmes in place to protect against the financial consequences of
covered events
• Security arrangements are in place across all sites
• Well-established home working (including sales teams) supports business continuity
Developments in 2022
• The business acted rapidly to address the conflict in Ukraine, activating crisis teams
and business continuity plans, in order to ensure employee safety, protect business
operations, and plan for the future
• The business continued to demonstrate great resilience in fiscal 22, dynamically
managing the evolving Covid-19 risk and volatility, utilising crisis management
teams and sharing lessons learnt, to support the business in adapting commercial
ways of working to changing conditions
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Risk outlook
Increasing
Climate action failure, extreme
weather and biodiversity loss
continue to top the list of the globe’s
highest risks, with regulations and
government interventions expected
to continue to increase.
Transition climate risk is expected to
increase due to the acceleration of
regulatory efforts to control global
warming. In addition, transition risks
associated with increased customer
and consumer awareness and
action on climate change are likely
to accelerate.
Increasing
As we emerge from the pandemic
and see increasing geopolitical
tensions rise, as well as an
increasing global inflation crisis,
pressures on public finances will
increase the need to raise new
tax revenue.
Increasing
• Restrictions are being lifted in
most regions, signaling the
transition from pandemic to
lower-impact endemic situation.
• However, further variants are
expected to arise, with uncertainty
over their potential impact; a
significant variant could
potentially reverse progress.
• We continue to monitor risk of
new pandemic strains.
• In the short term, there will also
be significantly heightened
international tensions, widespread
economic reverberations from
sanctions, and interruption.
Strategic outcomes
EG
Efficient growth
CVC
Consistent value creation
CT
Credibility and trust
EP
Engaged people
V
Risk included in viability assessment
Risk outlook
Increasing
Decreasing
Stable
Diageo Annual Report 2022
43
Our principal risks and risk management continued
Risk and impact
Mitigation plans
4. GEOPOLITICAL AND
MACROECONOMIC
VOLATILITY
EG
CVC
V
Failure to react quickly enough
to changing economic and/
or political conditions, e.g.,
inflationary pressures, currency
instability, global trade tensions,
heightened political protectionism,
changes to customs duties and
tariffs, and/or eroded consumer
confidence, may impact on our
freedom to operate in a market and
could adversely impact forecasting
and/or financial performance.
Ongoing mitigations
• Local and global monitoring of key business drivers and performance, to prepare
for rapid changes in the external environment
• Group-level strategic analysis and scenario planning to strengthen market
strategies and risk management
• Multi-country investment strategy and local sourcing strategies
• Central hedging and currency monitoring to manage volatility
• Dedicated cross-functional steering groups to manage acute issues, including
inflation and other supply chain considerations
Developments in 2022
• We have continued to improve long-term forecasting and planning capabilities,
resulting in 10-year volume forecasts by spirits category, region and price tier,
to better assess and respond to long-term opportunities and risks
• We have introduced a new strategic planning and performance function with
a stronger governance model for financial and non-financial decision-making,
which will enable closer monitoring of external volatility/risk and its impact on
short, mid and long-term planning and performance management
5. INTERNATIONAL DIRECT
TAX
EG
CVC
CT
V
The international tax environment,
including significant changes thereto,
may alter our operating position,
leading to an increased cost of
compliance, an increase in our
effective tax rates and/or
unexpected tax exposures and
uncertainty, resulting in financial loss.
Ongoing mitigations
• We monitor and, where appropriate, express views on the formulation of tax laws
either directly or through trade associations or similar bodies
• We are continuing the implementation of our tax transformation programme, to
standardise, centralise and automate tax activities and controls where possible
• We have embedded our refreshed global transfer pricing policy, to ensure the
way profits are taxed is consistent with business activities and economic substance
Developments in 2022
• We continue to monitor tax laws, and progress the implementation of our tax
transformation programme
6. SUPPLY CHAIN
DISRUPTION
EG
CVC
CT
V
Supply chain disruptions can occur
for a range of reasons, including
pandemics and volatility in
consumer behaviour, customer and
consumer demand, labour capacity
and global economic conditions.
We have been impacted by
disruptions to our supply chain and
this may continue to occur in the
future. The occurrence of these
events may result in shortages of
essential materials, heightened
logistical constraints, longer lead
times and heightened third-party
supplier disruption, and therefore
may continue to have a negative
impact our commercial and
financial performance.
7. CYBER AND IT RESILIENCE
EG
CVC
CT
V
Sophisticated cyber and IT threats
(both within our network and at third
parties), including those facilitated
through breaches of internal policies
and unauthorised access, could lead
to theft, loss and misappropriation of
critical assets, such as personal and
consumer data, and operational/
production systems. Inadequate IT
resilience arrangements and
integration with legacy systems could
cause disruption to core business
operations, including manufacturing
and supply, resulting in financial loss
and reputational damage.
Ongoing mitigations
• Regular reviews across supply chain and procurement areas to identify, assess
and manage risks
• Cross-functional scenario planning to ensure effective levels of resilience exist
across single points of failure within the supply chain
• Ongoing monitoring of capacity and demand ratios across the supply chain
to ensure visibility of constraints and resilience is in place
• Product portfolio simplification and stock-keeping unit (SKU) rationalisation,
ensuring focus remains on keys SKU’s while limiting the likelihood of out-of-stocks
• Annual testing and review of supply site, business continuity and crisis
management plans
Developments in 2022
• We have prioritised our portfolio and implemented various strategies based upon
our product segmentation
• We have partnered closely with our external partners, across ocean, logistics,
cans and glass to build mitigation plans and manage volatility
• We have leveraged our data visualisation and other tools to monitor and react
to the rapidly changing consumer needs or supply chain disruptions
• We have become more resilient by establishing dual sourcing solutions across
the supply chain nodes
Ongoing mitigations
• Enterprise-wide cyber risk management processes and policies
• Our employees engage in mandatory global e-learning and regular phishing
exercises
• We have deployed next-generation security technologies to tackle
advanced attacks
• We have multi-factor authentication, single sign-on and privileged access
management for sensitive applications
• We perform IT disaster recovery and business continuity testing across our
key systems
• We monitor external cyber incidents to assess any potential risk and impact
to our organisation
Developments in 2022
• Additional threat detection and incident management processes and tools
• We continue to enhance our operational technology cyber capabilities at our
manufacturing plants
• The Board has approved the upgrade of our enterprise resource planning system
and are reviewing associated processes to ensure they remain resilient
44
Diageo Annual Report 2022
Risk outlook
Increasing
• The global recovery from Covid-19
is continuing, but momentum has
slowed and there is a risk of
imbalanced recovery across
geographies.
• The Russian invasion of Ukraine has
caused significant volatility in the
region and beyond.
• There is increasing risk of recession
and slowing growth being reported.
Inflationary pressures are broadly
expected to continue in the short
term but then start to ease over the
medium term, as key bottlenecks
ease, capacity expands, more
people return to the labour force
and demand rebalances.
Increasing
• The OECD’s work on digitalisation
may result in changes to how
multinationals are taxed, and could
result in tax increases – through the
implementation of a global
agreement on minimum effective
tax rate, or unilateral actions by
individual countries.
• The risk of unilateral tax increases as
governments seek to address fiscal
challenges has begun to materialise,
with the UK corporation tax rate
increasing to 25% as of 1 April 2023.
Increasing
• Supply chain disruption is likely to
grow in the near term, rather than
stabilising. Geopolitical tensions, oil
and gas prices, ongoing conflict in
Ukraine and higher inflation will
have an adverse impact on
logistics, and material volatility,
amidst broader supply chain
impacts.
• The economic reverberations are
likely to impact first- and second-tier
suppliers, supply chain lead times
and sufficiency of supply.
Increasing
• Cyber attacks are becoming more
prevalent, and we are increasingly
dependent on third-party IT
services and solutions.
• Geopolitical tensions are growing,
and there is a rise in more
sophisticated cyber threats
affecting all organisations,
therefore the risk of a cyber
attack remains heightened.
Our principal risks and risk management continued
Risk and impact
Mitigation plans
4. GEOPOLITICAL AND
MACROECONOMIC
VOLATILITY
EG
CVC
V
Failure to react quickly enough
to changing economic and/
or political conditions, e.g.,
inflationary pressures, currency
instability, global trade tensions,
heightened political protectionism,
changes to customs duties and
tariffs, and/or eroded consumer
confidence, may impact on our
freedom to operate in a market and
could adversely impact forecasting
and/or financial performance.
Ongoing mitigations
• Local and global monitoring of key business drivers and performance, to prepare
for rapid changes in the external environment
• Group-level strategic analysis and scenario planning to strengthen market
strategies and risk management
• Multi-country investment strategy and local sourcing strategies
• Central hedging and currency monitoring to manage volatility
• Dedicated cross-functional steering groups to manage acute issues, including
inflation and other supply chain considerations
Developments in 2022
• We have continued to improve long-term forecasting and planning capabilities,
resulting in 10-year volume forecasts by spirits category, region and price tier,
to better assess and respond to long-term opportunities and risks
• We have introduced a new strategic planning and performance function with
a stronger governance model for financial and non-financial decision-making,
which will enable closer monitoring of external volatility/risk and its impact on
short, mid and long-term planning and performance management
5. INTERNATIONAL DIRECT
Ongoing mitigations
TAX
EG
CVC
CT
V
The international tax environment,
including significant changes thereto,
may alter our operating position,
leading to an increased cost of
compliance, an increase in our
effective tax rates and/or
unexpected tax exposures and
uncertainty, resulting in financial loss.
• We monitor and, where appropriate, express views on the formulation of tax laws
either directly or through trade associations or similar bodies
• We are continuing the implementation of our tax transformation programme, to
standardise, centralise and automate tax activities and controls where possible
• We have embedded our refreshed global transfer pricing policy, to ensure the
way profits are taxed is consistent with business activities and economic substance
Developments in 2022
transformation programme
• We continue to monitor tax laws, and progress the implementation of our tax
6. SUPPLY CHAIN
DISRUPTION
EG
CVC
CT
V
Ongoing mitigations
and manage risks
• Regular reviews across supply chain and procurement areas to identify, assess
• Cross-functional scenario planning to ensure effective levels of resilience exist
across single points of failure within the supply chain
• Ongoing monitoring of capacity and demand ratios across the supply chain
to ensure visibility of constraints and resilience is in place
• Product portfolio simplification and stock-keeping unit (SKU) rationalisation,
ensuring focus remains on keys SKU’s while limiting the likelihood of out-of-stocks
• Annual testing and review of supply site, business continuity and crisis
management plans
Developments in 2022
our product segmentation
• We have prioritised our portfolio and implemented various strategies based upon
• We have partnered closely with our external partners, across ocean, logistics,
cans and glass to build mitigation plans and manage volatility
• We have leveraged our data visualisation and other tools to monitor and react
to the rapidly changing consumer needs or supply chain disruptions
• We have become more resilient by establishing dual sourcing solutions across
the supply chain nodes
• Enterprise-wide cyber risk management processes and policies
• Our employees engage in mandatory global e-learning and regular phishing
• We have deployed next-generation security technologies to tackle
exercises
advanced attacks
• We have multi-factor authentication, single sign-on and privileged access
management for sensitive applications
• We perform IT disaster recovery and business continuity testing across our
• We monitor external cyber incidents to assess any potential risk and impact
key systems
to our organisation
Developments in 2022
• Additional threat detection and incident management processes and tools
• We continue to enhance our operational technology cyber capabilities at our
manufacturing plants
• The Board has approved the upgrade of our enterprise resource planning system
and are reviewing associated processes to ensure they remain resilient
Supply chain disruptions can occur
for a range of reasons, including
pandemics and volatility in
consumer behaviour, customer and
consumer demand, labour capacity
and global economic conditions.
We have been impacted by
disruptions to our supply chain and
this may continue to occur in the
future. The occurrence of these
events may result in shortages of
essential materials, heightened
logistical constraints, longer lead
times and heightened third-party
supplier disruption, and therefore
may continue to have a negative
impact our commercial and
financial performance.
EG
CVC
CT
V
Sophisticated cyber and IT threats
(both within our network and at third
parties), including those facilitated
through breaches of internal policies
and unauthorised access, could lead
to theft, loss and misappropriation of
critical assets, such as personal and
consumer data, and operational/
production systems. Inadequate IT
resilience arrangements and
integration with legacy systems could
cause disruption to core business
operations, including manufacturing
and supply, resulting in financial loss
and reputational damage.
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Diageo Annual Report 2022
7. CYBER AND IT RESILIENCE
Ongoing mitigations
Risk outlook
Increasing
• The global recovery from Covid-19
is continuing, but momentum has
slowed and there is a risk of
imbalanced recovery across
geographies.
• The Russian invasion of Ukraine has
caused significant volatility in the
region and beyond.
• There is increasing risk of recession
and slowing growth being reported.
Inflationary pressures are broadly
expected to continue in the short
term but then start to ease over the
medium term, as key bottlenecks
ease, capacity expands, more
people return to the labour force
and demand rebalances.
Increasing
• The OECD’s work on digitalisation
may result in changes to how
multinationals are taxed, and could
result in tax increases – through the
implementation of a global
agreement on minimum effective
tax rate, or unilateral actions by
individual countries.
• The risk of unilateral tax increases as
governments seek to address fiscal
challenges has begun to materialise,
with the UK corporation tax rate
increasing to 25% as of 1 April 2023.
Increasing
• Supply chain disruption is likely to
grow in the near term, rather than
stabilising. Geopolitical tensions, oil
and gas prices, ongoing conflict in
Ukraine and higher inflation will
have an adverse impact on
logistics, and material volatility,
amidst broader supply chain
impacts.
• The economic reverberations are
likely to impact first- and second-tier
suppliers, supply chain lead times
and sufficiency of supply.
Increasing
• Cyber attacks are becoming more
prevalent, and we are increasingly
dependent on third-party IT
services and solutions.
• Geopolitical tensions are growing,
and there is a rise in more
sophisticated cyber threats
affecting all organisations,
therefore the risk of a cyber
attack remains heightened.
Risk and impact
Mitigation plans
8. BUSINESS ETHICS AND
INTEGRITY
EG
CT
EP
Lack of an embedded business
integrity culture or any breach of our
policies, relevant laws or regulations
(including but not limited to
anti-corruption, money laundering,
global competition, human rights,
data protection and economic
sanctions) could result in significant
penalties, financial loss and
reputational damage.
Ongoing mitigations
• Our Code of Business Conduct and supporting policies and standards set out
compliance requirements which are then embedded throughout Diageo via regular
training, communications, annual certification, and risk-based global and local
engagement activities
• Risk management process and assessment framework to identify, assess, mitigate
and monitor business and compliance risks
• Well-embedded control assurance programme and centralised second line of defence
• Third-party due diligence process supported by technology and central oversight
• Utilisation of data and analytics tools to proactively support risk identification,
assessment and ongoing governance
Developments in 2022
• Leveraged existing sanctions and Know Your Business Partners processes to manage
the impact of regulation and risks arising from the conflict in Ukraine. Supplemented
these by quickly deploying a centralised team with specialist knowledge, to ensure
compliance and structure our business accordingly
• Deployment of values-based training and engagement across all levels, with a
particular focus on anti-bribery and corruption as part of our Code of Business
Conduct training, and conflicts of Interest and our SpeakUp whistleblower service
• We have updated our global human rights framework and are further enhancing
our governance processes, to ensure that human rights considerations are
strengthened across all business operations and reflect emerging human rights
regulations across the globe
9. CONSUMER DISRUPTION
EG
CVC
CT
V
Ongoing mitigations
• We have a highly diversified portfolio of brands, to ensure coverage of consumer
Inability to respond and adapt our
products or processes to disruptive
market forces — including but not
limited to digital technology, health
and lifestyle priorities, altered
consumption behaviour, new drivers
of choice, and new formats and
technologies — that could impact our
ability to effectively service our
customers and consumers with the
required agility, and result in
financial loss.
10. PRODUCT QUALITY AND
COUNTERFEIT
EG
CT
Accidental or malicious
contamination of raw materials or
finished product, and/or ineffective
brand protection and intervention to
address counterfeiting of our
products supplied to market, could
cause harm to consumers, damage
our corporate and brand reputation
and pose potential threats to our
people due to the illicit nature of
organisations involved in
counterfeiting activities.
occasions, trends and price points
• We operate a rigorous process of strategy development and governance at corporate
and market level
• We perform a systematic review of emerging consumer and route-to-consumer trends
at market and brand level, including growth of disruptive digital technologies
• We focus our innovation on our strategic priorities and the biggest consumer
opportunities, through global brand extensions and new-to-world products
• Systematic review of emerging consumer and route-to-consumer trends at market
and brand level, including growth of disruptive digital technologies
• Our Demand Radar system provides enhanced demand forecasting capability at
market and category level, allowing us to optimise marketing investment
Developments in 2022
• We have continued to refine our end-to-end early warning system for consumer
disruption, bringing together demand sensing, signals gathering, trend detection,
macro forces tracking, and consumption analysis into one comprehensive system of
consumer intelligence and business resilience
Ongoing mitigations
• We have food safety system certification (FSSC 22000) in place for our owned
brewing and packaging sites
• We monitor the certification for third-party sites and, where necessary, exercise
our contractual right to audit
• Food fraud and food threat risk assessments are regularly undertaken
• Anti-counterfeiting measures embedded in our packaging deter against reuse,
making our products more difficult to copy and enabling rapid authentication
• We operate an active programme to identify high-risk areas, engage with customs
and law enforcement authorities, and participate in industry initiatives to monitor
and prevent counterfeiting activity
• We run an online monitoring and takedown programme across high-risk e-commerce
and social media platforms, and directly engage with many platforms to create
awareness and stop counterfeit listings
Developments in 2022
• Our Global Product Recall Standards have been strengthened, and training has been
developed, with each market performing a test recall
• We have further developed and standardised our approach to monitoring known and
emerging food safety risks associated with the spirits category in fiscal 22, by
implementing a global spirits product integrity testing programme
• New vendor onboarded, enhancing our online monitoring capabilities and improving
our ability to respond to online counterfeit risk
• We have begun to roll-out upgraded liquid authentication machines
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Risk outlook
Increasing
• There are increased regulatory
expectations with new legal
regimes being imposed, and
a heightened enforcement
stance being adopted across
different markets; e.g.,
enhanced economic sanctions
relating to Russia, and an
incoming UK strict liability
offence for certain sanctions
breaches (subject to civil
penalties).
Stable
• The world is emerging from
a period of extreme disruption
that has reshaped
consumerism both temporarily
and residually.
• Near-term consumer trends
are likely to be characterised
by a return to normalcy, and
the normalisation of newly
acquired (or recently
accelerated) behaviours.
Stable
• The risk of product quality
risk remains stable, though
material sourcing challenges
mean we need to ensure that
we maintain and implement
our standards effectively to
mitigate this additional risk.
• The geopolitical risk in
Eastern Europe (including
Russia) brings increased risk of
counterfeit as it creates porous
borders; while the rise in
inflation and the cost of living
across many markets could
lead to an increase in illicit
activity.
Strategic outcomes
EG
Efficient growth
CVC
Consistent value creation
CT
Credibility and trust
EP
Engaged people
V
Risk included in viability assessment
Risk outlook
Increasing
Decreasing
Stable
Diageo Annual Report 2022
45
Our principal risks and risk management continued
Viability statement
The Directors have reviewed the long-term prospects of the group in
order to assess its viability. This review considered the activities and
principal risks of the group, together with factors likely to affect the
group’s future performance, financial position, cash flows, liquidity
position and borrowing facilities, as described in this Annual Report.
Assessment
In order to report on the long-term viability of the group, the Directors
reviewed the overall funding capacity and headroom available to
withstand severe and plausible downside events, and carried out a
robust assessment of the relevant principal risks facing the group,
including those that would threaten its business model, future
performance, solvency, or liquidity. This assessment also included the
review and understanding of mitigating factors for each principal risk.
The risks and mitigating factors are summarised in this Annual Report.
The viability assessment has three parts
First, the Directors considered the period over which they have a
reasonable expectation that the group will continue to operate and
meet its liabilities. A three-year period is considered appropriate for this
Risk Scenarios Modelled
Description & Severity
viability assessment, as this period is covered by the group’s strategic
plan and carries a high level of confidence in assessing viability.
Second, they considered the potential impact of severe but plausible
scenarios over this period, each of which contains a combination of
principal risks. None of the scenarios individually or in aggregate
would cause Diageo to cease to be viable. A summary of the severe
and plausible risks modelled, and the level of severity reviewed, is
included below.
Thirdly, they considered the group’s sources of liquidity to fund both the
strategic plan and the impact of the severe scenarios over this period.
Diageo has continuous access to the debt capital markets and
committed facilities over the viability period, including the ability to
refinance any maturing debt, or meet new funding requirements at
commercially acceptable terms. The group’s liquidity is supported by a
healthy balance of short-term and long-term debt programmes, and
£2.8 billion of committed credit facilities, if required. The group also has
flexibility in reducing discretionary spending, including acquisitions and
capital expenditure, as well as temporarily suspending/reducing its
return of capital to shareholders (dividends or share buybacks).
Global economic
downturn
Severe global recession compounded by heightened geopolitical tensions and sharp economic challenges, including
significant cost inflation, sustained foreign exchange volatility and fiscal tightening. This results in lost sales, through
reduced consumer confidence, greater volatility amongst our customers, and heightened price sensitivity. Geopolitical
tensions also drive up risk of cyber-attack, causing production and shipment outages in key sites.
Sales: Reduction in volumes across the three-year period, and consumer downtrading, with reduced pricing outcomes.
Costs: Geopolitical tensions increase costs of raw materials and freight, adversely impact gross margin.
Pandemic-driven
demand shock
A sharp shock to demand driven by a global pandemic results in temporary closure of on-trade outlets, extensive travel
bans across the globe, driving heightened credit and accounts receivable risks across our customer base. Supply chains
are disrupted by labour and logistical constraints, causing volatility within our internal, third party and suppliers’
operations.
Sales: Sharp shock, with severely reduced sales from the onset of the pandemic for a sustained period of time.
Costs: Increased volatility for inbound and outbound logistics.
Cash: Inability to collect cash from customers due to reduced trading ability, impacting free cash flow.
Principal risks
Geopolitical and
macroeconomic
volatility
International
direct tax
Cyber and IT
Resilience
Pandemic and
business interruption
Supply chain
disruption
Consumer choice
changes and
regulatory impact
Consumer preferences move away from alcohol consumption and large international brands, driven by changing health
and lifestyle priorities and social habits, alongside trends to support new, local and independently owned brands. In
parallel, public health concerns lead regulators in major markets to impose significant health-driven excise increases.
Sales: Loss of sales to new to world brands and the no and low segment, each year across the three-year period.
Profit: Increase in excise tax, and the introduction of a health tax across the globe, leading to a reduction in profit.
Regulation, trade
barriers and indirect
tax
Consumer disruption
Climate change
and natural
hazard
Combined
scenarios
Increasing global temperatures impact our ability to make products due to constrained water supply, leading to a
rotational short-term shutdown occurring across some of our water-stressed sites. Climate change drives increasing costs
of raw materials, while the acceleration of taxation against carbon use increases our operational costs. Extreme weather
events occur more frequently, impacting our supply facilities, causing production outages. The assumptions associated
with this scenario are based upon our TCFD scenario modelling, and applied to a three-year period.
Sales: Loss of sales due to operational outages as a result of ceasing of production at water-stressed sites, and the
impact of extreme weather events.
Costs: Increased carbon tax per tonne, and cost of raw and packaging materials increases overall costs of goods.
Climate change and
sustainability
Supply chain
disruption
Pandemic and
business interruption
The highly unlikely event of the combination of all of the above scenarios occurring at the same time.
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 the base case scenario,
management has included assumptions for mid-single digit net sales
growth, operating margin improvement and global TBA market share
growth. In light of the ongoing geopolitical volatility, the base case
outlook and plausible downside scenarios have incorporated
considerations for a slower post-pandemic economic recovery, supply
chain disruptions, higher inflation and further geopolitical deterioration.
Even under these scenarios, the group’s cash position is still expected
to remain strong, as the group’s liquidity was protected by issuing
€1,650 million of fixed-rate euro and £900 million of fixed-rate sterling
denominated bonds, in the year ended 30 June 2022. Mitigating
actions, should they be required, are all within management’s control
46
Diageo Annual Report 2022
and could include reductions in discretionary spending, 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 drawdowns on committed facilities.
Having considered the outcome of these assessments, the Directors are
comfortable that the company is a going concern for at least 12 months
from the date of signing the group’s consolidated financial statements.
Conclusion
On the basis described above, the Directors have a reasonable
expectation that the group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period
of their assessment.
The Directors have reviewed the long-term prospects of the group in
viability assessment, as this period is covered by the group’s strategic
order to assess its viability. This review considered the activities and
plan and carries a high level of confidence in assessing viability.
Our principal risks and risk management continued
Viability statement
principal risks of the group, together with factors likely to affect the
group’s future performance, financial position, cash flows, liquidity
position and borrowing facilities, as described in this Annual Report.
Assessment
In order to report on the long-term viability of the group, the Directors
reviewed the overall funding capacity and headroom available to
withstand severe and plausible downside events, and carried out a
robust assessment of the relevant principal risks facing the group,
including those that would threaten its business model, future
performance, solvency, or liquidity. This assessment also included the
review and understanding of mitigating factors for each principal risk.
The risks and mitigating factors are summarised in this Annual Report.
The viability assessment has three parts
First, the Directors considered the period over which they have a
reasonable expectation that the group will continue to operate and
meet its liabilities. A three-year period is considered appropriate for this
Risk Scenarios Modelled
Description & Severity
Second, they considered the potential impact of severe but plausible
scenarios over this period, each of which contains a combination of
principal risks. None of the scenarios individually or in aggregate
would cause Diageo to cease to be viable. A summary of the severe
and plausible risks modelled, and the level of severity reviewed, is
included below.
Thirdly, they considered the group’s sources of liquidity to fund both the
strategic plan and the impact of the severe scenarios over this period.
Diageo has continuous access to the debt capital markets and
committed facilities over the viability period, including the ability to
refinance any maturing debt, or meet new funding requirements at
commercially acceptable terms. The group’s liquidity is supported by a
healthy balance of short-term and long-term debt programmes, and
£2.8 billion of committed credit facilities, if required. The group also has
flexibility in reducing discretionary spending, including acquisitions and
capital expenditure, as well as temporarily suspending/reducing its
return of capital to shareholders (dividends or share buybacks).
Principal risks
International
Cyber and IT
Resilience
Supply chain
disruption
Global economic
Severe global recession compounded by heightened geopolitical tensions and sharp economic challenges, including
downturn
significant cost inflation, sustained foreign exchange volatility and fiscal tightening. This results in lost sales, through
Geopolitical and
macroeconomic
reduced consumer confidence, greater volatility amongst our customers, and heightened price sensitivity. Geopolitical
volatility
tensions also drive up risk of cyber-attack, causing production and shipment outages in key sites.
Sales: Reduction in volumes across the three-year period, and consumer downtrading, with reduced pricing outcomes.
direct tax
Costs: Geopolitical tensions increase costs of raw materials and freight, adversely impact gross margin.
Pandemic-driven
demand shock
A sharp shock to demand driven by a global pandemic results in temporary closure of on-trade outlets, extensive travel
Pandemic and
bans across the globe, driving heightened credit and accounts receivable risks across our customer base. Supply chains
business interruption
are disrupted by labour and logistical constraints, causing volatility within our internal, third party and suppliers’
operations.
Sales: Sharp shock, with severely reduced sales from the onset of the pandemic for a sustained period of time.
Costs: Increased volatility for inbound and outbound logistics.
Cash: Inability to collect cash from customers due to reduced trading ability, impacting free cash flow.
Consumer choice
changes and
regulatory impact
Consumer preferences move away from alcohol consumption and large international brands, driven by changing health
Regulation, trade
and lifestyle priorities and social habits, alongside trends to support new, local and independently owned brands. In
barriers and indirect
parallel, public health concerns lead regulators in major markets to impose significant health-driven excise increases.
tax
Sales: Loss of sales to new to world brands and the no and low segment, each year across the three-year period.
Consumer disruption
Profit: Increase in excise tax, and the introduction of a health tax across the globe, leading to a reduction in profit.
Climate change
and natural
hazard
Increasing global temperatures impact our ability to make products due to constrained water supply, leading to a
Climate change and
rotational short-term shutdown occurring across some of our water-stressed sites. Climate change drives increasing costs
sustainability
of raw materials, while the acceleration of taxation against carbon use increases our operational costs. Extreme weather
events occur more frequently, impacting our supply facilities, causing production outages. The assumptions associated
with this scenario are based upon our TCFD scenario modelling, and applied to a three-year period.
Sales: Loss of sales due to operational outages as a result of ceasing of production at water-stressed sites, and the
Supply chain
disruption
Pandemic and
business interruption
impact of extreme weather events.
Costs: Increased carbon tax per tonne, and cost of raw and packaging materials increases overall costs of goods.
Combined
scenarios
The highly unlikely event of the combination of all of the above scenarios occurring at the same time.
Management has prepared cash flow forecasts which have also been
and could include reductions in discretionary spending, such as
sensitised to reflect severe but plausible downside scenarios, taking into
acquisitions and capital expenditure, as well as a temporary
consideration the group’s principal risks. In the base case scenario,
suspension of the share buyback programme and dividend
management has included assumptions for mid-single digit net sales
payments in the next 12 months, or drawdowns on committed facilities.
growth, operating margin improvement and global TBA market share
Having considered the outcome of these assessments, the Directors are
growth. In light of the ongoing geopolitical volatility, the base case
comfortable that the company is a going concern for at least 12 months
outlook and plausible downside scenarios have incorporated
from the date of signing the group’s consolidated financial statements.
considerations for a slower post-pandemic economic recovery, supply
chain disruptions, higher inflation and further geopolitical deterioration.
Even under these scenarios, the group’s cash position is still expected
to remain strong, as the group’s liquidity was protected by issuing
€1,650 million of fixed-rate euro and £900 million of fixed-rate sterling
denominated bonds, in the year ended 30 June 2022. Mitigating
actions, should they be required, are all within management’s control
46
Diageo Annual Report 2022
Conclusion
On the basis described above, the Directors have a reasonable
expectation that the group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period
of their assessment.
Responding to climate-related risks
Action to combat climate change
Climate change is disruptive and accelerating. It is a risk we can, if we act
swiftly and collectively, try to mitigate. There are also opportunities for
companies that recognise the challenge and develop credible plans to
adapt to changing circumstances.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Climate risk is disruptive and accelerating
The past year has seen climate change move dramatically up the
global agenda. In August 2021, the Intergovernmental Panel on
Climate Change (IPCC) published its Sixth Assessment Report,
which paints a stark picture of the impact of climate change on
our environment, and makes it clear that all parties need to act
immediately if we are to avoid catastrophic implications for the planet.
November 2021 saw most of the world’s leadership gathering for
COP26, the UN’s climate change conference, which confirmed the
Paris Agreement, a treaty made at COP21 in 2015, that governments
must make every reasonable effort to ensure that the global
temperature rises by no more than 1.5°C above pre-industrial levels.
In January 2022, the World Economic Forum’s Global Risks Report
stated: ‘Climate change continues to be perceived as the gravest
threat to humanity. Global Risks Perception Survey respondents rate
“climate action failure” as the risk with the potential to inflict the most
damage at a global scale over the next decade’1.
Developments in corporate regulation
It is no surprise that climate change is of increasing concern to
legislators, investors and analysts – as well as to employees and
other corporate stakeholders. Global companies, with considerable
economic and wider influence, are important actors in the world’s
efforts to combat climate change. This concern is making itself felt
through developments in regulation, for example, with the requirement
in the United Kingdom this year for premium listed companies to report
against the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD). In the United States, the Securities and
Exchange Commission (SEC) proposed rule changes that would
require companies to include climate-related disclosures in their
periodic reports. 2021 also saw the establishment by the IFRS
Foundation of the International Sustainability Standards Board (ISSB),
whose aim is to ‘deliver a comprehensive global baseline of
sustainability-related disclosure standards that provide investors and
other capital market participants with information about companies’
sustainability-related risks and opportunities to help them make
informed decisions’.
Committed to action
We welcome many of these developments, and particularly certain
recommendations of the TCFD and the SEC, as important steps in
increasing stakeholders’ and companies’ focus on climate change,
and we are committed to playing our part and championing policies
that support the Paris Agreement. We believe harmonisation of
reporting frameworks will bring benefits to investors, as well as
simplifying reporting requirements for companies. We support the
establishment of a coordinated approach by regulators across
jurisdictions, which reflects the reality that climate change is a
cross-border issue, and we have actively engaged in consultations
by organisations like the SEC to advocate such harmonisation.
1. Global Risks Report, World Economic Forum, January 2022
‘Society 2030: Spirit of Progress’
Since 2020, we have worked to incorporate the TCFD framework into
our reporting, and have found it helpful in accelerating our efforts to
decarbonise our value chain, mitigate and adapt to climate change
risks and identify opportunities for transitioning quickly to a low-carbon
future. We began our carbon reduction efforts in 2008, while also
acting as a champion for water stewardship around the world to
combat the related issue of water stress.
Today, our focus on climate change is encapsulated in one of our
six strategic priorities, which help us pursue our ambition to be one of
the best performing, most trusted and respected consumer products
companies in the world. The priority, ‘pioneer grain-to-glass
sustainability’, also encompasses other important topical issues
relating to sustainability, such as water stress, biodiversity loss,
poverty and inequality. Many of these issues are being exacerbated
by climate change, and are threatening both the environment and
the prosperity of communities everywhere, particularly those in
low-income countries. In response to these challenges, in 2020 we
launched a bold, 10-year action plan, ‘Society 2030: Spirit of Progress’,
which sets stretching targets, including our commitment to achieving
net zero carbon emissions from our direct operations (Scopes 1 and 2)
by 2030, and across our full value chain (Scope 3) by 2050 or earlier.
And we are proud to be a signatory to the Business Ambition for 1.5°C,
which calls on companies to set ambitious science-based emissions
reduction targets.
Understanding the impact of climate change
on our business
Climate change is an important disruptive force, with potential to drive
substantive changes in our operations and supply chain in the short
term (one to five years), medium term (five to 10 years) and long term
(10 to 30 years). Many of the potential effects of climate change can
be characterised as risks, either physical risks to our environment, or
risks associated with the transition to a low-carbon economy in pursuit
of the Paris Agreement targets. Climate risk is therefore cross-cutting,
with the potential to affect companies, financial institutions, households,
countries and the financial system at large. There may, however, be
opportunities as well as risks for those companies that enable the
transition to a low-carbon economy.
Because there are so many different factors affecting how climate
change will play out in the world, it is difficult to quantify the precise
timing and impact of climate risks on our business, or indeed the
opportunities that may present themselves. Nonetheless, some
modelling is possible, and so, with the support of expert partners,
we are building our capability to assess both, and model their
impact under various scenarios, as discussed in this report. From this
modelling work, we estimate that, from what we know now, climate
change is not expected to have a material impact on the results of
our operations, or on our financial condition by 2030 (see page 151).
Diageo Annual Report 2022
47
Responding to climate-related risks continued
Governance
We have adopted the TCFD’s recommendations for
reporting on governance, summarised on page 56.
Given its importance, and the potential severity of the risk it poses, we
oversee climate change at the highest level of the company, and have
governance processes in place intended to ensure that we consider
and factor climate risk into our business operations. We include climate
risk as a principal risk in our risk register (page 43), now as well as in
the short, medium and long term, and we assess and consider its
impact carefully, including a formal review by the Executive Committee
and the Board at least twice a year, and discussion at our Annual
Strategy Conference.
Board and management oversight of climate change
We believe governance of climate change risks and opportunities
needs to be embedded at all levels of our organisation. This year,
while our governance structure, described below, has not changed,
we increased our investment in climate risk management and
scenario analysis.
Board oversight
Audit Committee
Executive Committee
ownership
Executive sponsors:
President of Global Supply Chain and Procurement
Corporate Relations Director
Cross-functional Climate Risk Steering Group
Strategy
Supply
Risk
Finance
Corporate
Relations
Supply Risk
Mitigation
Group
Brand
Sustainability
Council
Policy and
Regulation
Working
Group
Technology
Working
Group
We believe that climate change is of such importance to us and our
stakeholders that the Diageo Board and Executive Committee should
be responsible for managing climate-related risks and opportunities,
and do not delegate responsibility to a sub-committee. Executive
sponsorship and responsibility is shared jointly between the President
of Global Supply Chain and Procurement (Ewan Andrew) and the
Corporate Relations Director (Dan Mobley). At an operational level,
they are supported by our cross-functional Climate Risk Steering Group,
with sub-groups dedicated to different areas such as supply, strategy,
risk and so on.
The Steering Group meets up to twice a month to oversee how we are
managing climate risks and identifying opportunities. Within this, a
sub-group from Supply and Procurement oversees physical risks, with
other working groups responsible for addressing transition risks and
opportunities, for example market and reputation, policy and legal,
and technology.
Our Executive Committee reviews updates on climate risks and
opportunities from the Steering Group twice a year, and considers their
implications for strategy and decision-making. The Executive Sponsors
formally update the Board quarterly, including, where relevant, reviewing
the outputs of our climate change risk assessments and scenario
analyses, and overseeing any related decision-making. Any potential
financial implications of climate risk and potential impacts on Diageo’s
consolidated financial statements, including performance and progress
against non-financial metrics, are also shared with the Audit Committee.
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Diageo Annual Report 2022
Because of the critical importance of climate change, we have
developed a range of communications and training materials on
sustainability issues for our employees on our digital learning platform.
These include specialist training for leaders, and climate-risk education
programmes open to all.
We continue to engage externally, to monitor and promote good
practice and keep pace with stakeholders’ expectations of companies
with regard to climate change. This includes being an active member
of the TCFD working group through the UN Global Compact.
Climate change as part of remuneration
Given the importance of managing climate change, the performance
element of the long-term incentive plan (LTIP) for our senior leaders
encourages and rewards performance against an ESG measure
(introduced in 2020, for fiscal 21 to 23). It constitutes 20% of the
performance share award, which is granted to the Executive
Committee as well as other senior leaders across the business.
Of this 20%, 10% (i.e. half of the share award) relates to targets
for carbon emissions and water efficiency, which directly support
mitigation of and adaptation to climate change risk (see Directors’
remuneration report pages 106-131).
Risk management
We have adopted the TCFD’s recommendations for reporting
on risk management, and include identification of risks in this
section as they are easier to understand in this context.
Climate risk may be divided into two broad categories: physical
risk and transition risk. Physical risks to our environment manifest
themselves in two ways: chronic changes (sea level rise, temperature
increases, changes in precipitation patterns), and acute events
(such as floods, storms, heatwaves or other extreme weather events).
While acute events can cause short-term damage, chronic changes
are slower to materialise but can cause long-term, irreversible changes.
Transition risks are those associated with the economic transformation
needed to transition to a low-carbon economy: for example, policy
and legal changes, such as introducing carbon taxes; technology
changes such as developments to switch to renewable energy; or
market changes such as consumer pressure for more sustainable
solutions. As we have already seen in the last few years, the time lag
between emissions increasing and the resulting change in the climate
means that some physical risks are already becoming a reality, and will
continue to increase even while efforts to reduce emissions intensify.
Although they are interconnected, physical and transition risks are
normally assessed separately, since they are amplified by different
scenarios. In a world where carbon emissions continue to rise, physical
risks become more likely, whereas in a world where we meet the goals
of the Paris Agreement, transition risks – and opportunities – increase.
How we manage climate risk
As a global business with a broad portfolio of brands based on
agricultural ingredients, and production facilities in multiple
geographies and locations, we are exposed to a wide range of
climate risks. However, we believe we have a considerable measure
of resilience, built up through decades of experience managing the
effects on our raw material supply of normal variations in climatic
conditions and agricultural yields. We do this through careful planning
in our supply and procurement function, and through supporting
research and development of high-yield, drought-resistant crops.
Many of the regions in which we operate are water stressed, and we
have a strong track record of adaptation measures to support the
sustainability of our operations in these areas. Climate risk has been
integrated into our enterprise risk management processes for some
time, particularly in our market, supply chain, procurement, and site
and strategic risk management processes; and has been built into our
strategic and business continuity plans.
Responding to climate-related risks continued
Governance
We have adopted the TCFD’s recommendations for
reporting on governance, summarised on page 56.
Given its importance, and the potential severity of the risk it poses, we
oversee climate change at the highest level of the company, and have
governance processes in place intended to ensure that we consider
and factor climate risk into our business operations. We include climate
risk as a principal risk in our risk register (page 43), now as well as in
the short, medium and long term, and we assess and consider its
impact carefully, including a formal review by the Executive Committee
and the Board at least twice a year, and discussion at our Annual
Strategy Conference.
Board and management oversight of climate change
We believe governance of climate change risks and opportunities
needs to be embedded at all levels of our organisation. This year,
while our governance structure, described below, has not changed,
we increased our investment in climate risk management and
scenario analysis.
Board oversight
Audit Committee
Executive Committee
ownership
Executive sponsors:
President of Global Supply Chain and Procurement
Corporate Relations Director
Cross-functional Climate Risk Steering Group
Supply
Strategy
Risk
Finance
Corporate
Relations
Supply Risk
Mitigation
Group
Brand
Sustainability
Council
Policy and
Regulation
Working
Group
Technology
Working
Group
We believe that climate change is of such importance to us and our
stakeholders that the Diageo Board and Executive Committee should
be responsible for managing climate-related risks and opportunities,
and do not delegate responsibility to a sub-committee. Executive
sponsorship and responsibility is shared jointly between the President
of Global Supply Chain and Procurement (Ewan Andrew) and the
Corporate Relations Director (Dan Mobley). At an operational level,
they are supported by our cross-functional Climate Risk Steering Group,
with sub-groups dedicated to different areas such as supply, strategy,
risk and so on.
The Steering Group meets up to twice a month to oversee how we are
managing climate risks and identifying opportunities. Within this, a
sub-group from Supply and Procurement oversees physical risks, with
other working groups responsible for addressing transition risks and
opportunities, for example market and reputation, policy and legal,
and technology.
Our Executive Committee reviews updates on climate risks and
opportunities from the Steering Group twice a year, and considers their
implications for strategy and decision-making. The Executive Sponsors
formally update the Board quarterly, including, where relevant, reviewing
the outputs of our climate change risk assessments and scenario
analyses, and overseeing any related decision-making. Any potential
financial implications of climate risk and potential impacts on Diageo’s
consolidated financial statements, including performance and progress
against non-financial metrics, are also shared with the Audit Committee.
48
Diageo Annual Report 2022
Because of the critical importance of climate change, we have
developed a range of communications and training materials on
sustainability issues for our employees on our digital learning platform.
These include specialist training for leaders, and climate-risk education
programmes open to all.
We continue to engage externally, to monitor and promote good
practice and keep pace with stakeholders’ expectations of companies
with regard to climate change. This includes being an active member
of the TCFD working group through the UN Global Compact.
Climate change as part of remuneration
Given the importance of managing climate change, the performance
element of the long-term incentive plan (LTIP) for our senior leaders
encourages and rewards performance against an ESG measure
(introduced in 2020, for fiscal 21 to 23). It constitutes 20% of the
performance share award, which is granted to the Executive
Committee as well as other senior leaders across the business.
Of this 20%, 10% (i.e. half of the share award) relates to targets
for carbon emissions and water efficiency, which directly support
mitigation of and adaptation to climate change risk (see Directors’
remuneration report pages 106-131).
Risk management
We have adopted the TCFD’s recommendations for reporting
on risk management, and include identification of risks in this
section as they are easier to understand in this context.
Climate risk may be divided into two broad categories: physical
risk and transition risk. Physical risks to our environment manifest
themselves in two ways: chronic changes (sea level rise, temperature
increases, changes in precipitation patterns), and acute events
(such as floods, storms, heatwaves or other extreme weather events).
While acute events can cause short-term damage, chronic changes
are slower to materialise but can cause long-term, irreversible changes.
Transition risks are those associated with the economic transformation
needed to transition to a low-carbon economy: for example, policy
and legal changes, such as introducing carbon taxes; technology
changes such as developments to switch to renewable energy; or
market changes such as consumer pressure for more sustainable
solutions. As we have already seen in the last few years, the time lag
between emissions increasing and the resulting change in the climate
means that some physical risks are already becoming a reality, and will
continue to increase even while efforts to reduce emissions intensify.
Although they are interconnected, physical and transition risks are
normally assessed separately, since they are amplified by different
scenarios. In a world where carbon emissions continue to rise, physical
risks become more likely, whereas in a world where we meet the goals
of the Paris Agreement, transition risks – and opportunities – increase.
How we manage climate risk
As a global business with a broad portfolio of brands based on
agricultural ingredients, and production facilities in multiple
geographies and locations, we are exposed to a wide range of
climate risks. However, we believe we have a considerable measure
of resilience, built up through decades of experience managing the
effects on our raw material supply of normal variations in climatic
conditions and agricultural yields. We do this through careful planning
in our supply and procurement function, and through supporting
research and development of high-yield, drought-resistant crops.
Many of the regions in which we operate are water stressed, and we
have a strong track record of adaptation measures to support the
sustainability of our operations in these areas. Climate risk has been
integrated into our enterprise risk management processes for some
time, particularly in our market, supply chain, procurement, and site
and strategic risk management processes; and has been built into our
strategic and business continuity plans.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Nevertheless, climate risk is accelerating fast, so we must not be
complacent – which is why it is included as a principal risk on our risk
register. We take very seriously the risks climate change could pose – to
the health and safety of our people, to our reputation, and to our ability
to meet our ‘Society 2030: Spirit of Progress’ goals. We are therefore
prepared to take some risk ourselves in innovating to meet consumer
needs for more sustainable products and combat climate change that
way. And so, with the help of external partners, we have developed a
much broader and deeper analysis of climate-related risks, which will
continue to evolve as scientific understanding develops, and as we
build our internal knowledge and expertise.
Identifying our physical risks
Physical risks manifest themselves differently in different parts of the
world, and so, for a global business like ours, with operations in many
parts of the world, assessing them is a considerable task, requiring
assessment not only of our own sites, but those of our many suppliers
as well. Trying to do it all at once is challenging, and there is an
advantage in doing the analysis over a couple of years because it
means we can incorporate what we learn from earlier assessments into
later ones. Nonetheless, we appreciate the urgency of understanding
this risk, and are pleased with the coverage we’ve achieved since we
began the process last year. We plan to complete the work with our
remaining markets over the next two years.
We began our physical risk assessment in 2021 by focussing on those
markets with the highest sales value – North America and Scotland –
and followed that up this year with those geographies where physical
climate risk is likely to be highest – Africa, India, Mexico and Turkey.
Also in 2021 we carried out a global assessment of water stress, an
activity we conduct routinely every two to three years.
Scope of assessment
We conducted assessments for our own sites and those of key suppliers
and logistics, over two timeframes (present to 2030 and to 2050), and
for two warming scenarios: medium warming, 2-3⁰C (IPCC scenario
RCP 4.5) and severe warming, 4-5⁰C (IPCC scenario RCP 8.5). The
analysis we have done so far (see table on page 50) represents
approximately three quarters of our volume produced globally.
• Diageo sites: for our own and key third-party operator (TPO) sites,
we analysed at a high level the risks to which they are likely to
be exposed; and for those that are either of greatest strategic
importance or at greatest risk, we carried out more detailed
assessments. In doing so, we developed a site-specific climate risk
register, which will help us plan how to mitigate the risks. At each
location, we looked at a combination of three things: the different
activities carried out (e.g. malting, distilling, packaging and so on);
the part of the process that might be affected (e.g. infrastructure,
water supply, energy sources); and the physical risks that might
occur (a total of 19). This level of detail is necessary because
some activities are more sensitive to physical risks (such as higher
temperatures) than other activities at the same site. In total, we
analysed 316 site/activity combinations, which gave us an overall
risk rating for each site.
• Supply chain and logistics: in each location we analysed the
factories and warehouses of our key suppliers (e.g. those of our
most critical or specialised ingredients and components); key
agricultural commodities; and our most critical upstream and
downstream distribution routes (road and rail, and sea ports), to
determine those that might be exposed to physical risk in the future.
We carried out the same analysis of physical risks for our supplier
sites as we did for our own sites.
Focus on water stress
Because we rely so heavily on water as a raw material and in our processes, we have been regularly assessing our own production sites
for water stress since 2008. The most recent assessment was in 2021, and we updated it in 2022 to reflect changes in our operations due
to disposals. The assessment – and our classification of a site as ‘water stressed’ – is based on external (WRI Aqueduct tool) and internal
site surveys covering physical, regulatory, and social and reputational considerations.
Our sites located in water-stressed areas in 2022
39
40
1
2
3
4
5
6
7
8
9
10
11
22
24
23
25
27
26
14
12
13
15
19
18
20
21
17
16
43
30
28
29
35
36
41
42
37
38
31
32
33
34
Sites
1. El Charcón, Mexico
2. Agricultural lands,
Guadalajara, Mexico
3. La Primavera, Mexico
4. Agricultural lands,
Céara, Brazil
5.
Itaitinga, Brazil
6. Maracanaú, Brazil
7. Messejana, Brazil
8. Paraipaba, Brazil
9. Kaase, Ghana
10. Achimota, Ghana
11. Lagos, Nigeria
12. Kampala, Uganda
13. Mwanza, Tanzania
14. Moshi, Tanzania
15. Dar es Salaam, Tanzania
16. Isipingo, South Africa
17. Marracuene, Mozambique
18. East African Maltings, Kenya
19. Kisumu, Kenya
20. Tusker, Kenya
21. SeyBrew, Seychelles
22. Alaşehir, Turkey
23. Acıpayam, Turkey
24. Karaman, Turkey
25. Nevşehir, Turkey
26. Taşel, Turkey
27. Tarsus, Turkey
28. Nasik, India
29. Udaipur, India
30. Alwar, India
31. Baramati, India
32. Hospet, India
33. Sovereign, India
34. Kumbalgodu, India
35. Aurangabad, India
36. Pioneer, India
37. Nacharam, India
38. Malkajgiri, India
39. Pathankot, India
40. Meerut, India
41. Rosa, India
42. Serampore, India
43. LKJ Packaging, Indonesia
Diageo Annual Report 2022
49
Responding to climate-related risks continued
Key climate risks to agricultural ingredients by region
United States
Maize
Barley
Rye
Sugar beet
American white oak
Europe
Barley
Wheat
Rye
Sugar beet
T W
T P
T W
T W P
T W
W D P
W P
T W
T
Turkey
Anise
Grapes
Sugar beet
Wheat
T D P F
T W F Fi
T W F Fi
T W D
Central and South America
Sugar cane
Agave
T W H F P S
T
Africa
Barley
Maize
Sorghum
Sugar beet
Sugar cane
Cassava
Vanilla
T D P
T D F
T P
T W
T W P
T D P
T S
India
Barley
Grapes
Rice
Molasses (sugar cane)
T W D P
T W D P
T P F
T W D P
Priority raw materials by volume
Climate risks likely to affect agricultural commodities
Barley
Agave
Wheat
Maize
Sugar / Molasses
Grapes
Sorghum
Rice
Other (including
anise and vanilla)
T
D
F
Temperature
P
Precipitation
(variability/extremes)
Drought
Flood
W
Water stress
Fi
H
S
Fires
Hurricane/storm
Sea level
Operational scope of our physical risk assessments
Region
North America
Scotland
Africa
India
Mexico
Turkey
Total
Diageo and key
TPO assets (detailed
assessments)
12 (4)
47 (5)
48 (5)
46 (7)
16 (4)
9 (4)
178 (29)
Agricultural
commodities
8
16
6
4
1
4
n/a1
Supplier assets
86
103
256
59
68
64
636
Ports2
6
15
14
1
2
5
43
1. We analysed some commodities in more than one location
2. Road and rail assessments were done at a country level and therefore not
individually quantified
Our physical risks – results
The assessments highlighted three key points:
1. Risks are high and increasing: the level of physical climate risk is
already relatively high and is projected to increase in all regions,
most severely in India, which accounts for the top 10 of our most
‘at risk’ activities. Risks ranged from medium to high in our top 10
most at-risk sites in each region.
2. All agricultural ingredients are at risk: all those we assessed are
subject to some degree of climate risk, with the risk set to increase
for most under the scenarios we analysed.
3. Water scarcity and high temperatures: water stress, drought and
high temperatures are our most significant risks.
50
Diageo Annual Report 2022
Overall, out of the 316 site/activity combinations we analysed, two are
currently classified as high risk, and 29 as medium-high. Under the
worst-case scenario, i.e. a temperature rise of 4-5⁰C, this rises to
11 high-risk site/activity combinations by 2050, and 42 medium-high.
Trajectory of physical risk from 316 site/activity combinations3
Combined number of sites/
activities at medium-high risk,
including % of total site/activities
29 (9%)
Combined number of sites/
activities at high risk, including %
of total site/activities
2 (1%)
28 (9%)
34 (11%)
32 (10%)
42 (13%)
9 (3%)
10 (3%)
9 (3%)
11 (3%)
Scenario
Present day
2030, 2-3°C (RCP 4.5)
2050, 2-3°C (RCP 4.5)
2030, 4-5°C (RCP 8.5)
2050, 4-5°C (RCP 8.5)
3. Scoring methodology
a) Relative risk score: the physical risk assessment results are reported as relative risk
scores (in comparison to the full sample of Diageo sites assessed) to help us
prioritise the sites for which we should create mitigation plans. High-risk sites are
above the 99th percentile; medium-high are in the 90th to 99th percentile; and
medium are in the 55th to 90th percentile.
b) Trajectory score: the risk assessment also produces trajectory scores for each of the
hazards assessed, indicating how they are expected to worsen or improve in the
scenario and time frame in question.
Responding to climate-related risks continued
Key climate risks to agricultural ingredients by region
United States
Maize
Barley
Rye
Sugar beet
American white oak
Europe
Barley
Wheat
Rye
Sugar beet
T W
T P
T W
T W P
T W
W D P
W P
T W
T
Turkey
Anise
Grapes
Sugar beet
Wheat
T D P F
T W F Fi
T W F Fi
T W D
Central and South America
Sugar cane
Agave
T W H F P S
T
Africa
Barley
Maize
Sorghum
Sugar beet
Sugar cane
Cassava
Vanilla
T D P
T D F
T P
T W
T W P
T D P
T S
India
Barley
Grapes
Rice
Molasses (sugar cane)
T W D P
T W D P
T P F
T W D P
Priority raw materials by volume
Climate risks likely to affect agricultural commodities
Barley
Agave
Wheat
Maize
Grapes
Sorghum
Rice
T
D
F
Drought
Flood
Temperature
P
Precipitation
Fires
(variability/extremes)
W
Water stress
Fi
H
S
Hurricane/storm
Sea level
Sugar / Molasses
Other (including
anise and vanilla)
Operational scope of our physical risk assessments
Region
North America
Scotland
Africa
India
Mexico
Turkey
Total
Diageo and key
TPO assets (detailed
Agricultural
assessments)
commodities
Supplier assets
Ports2
12 (4)
47 (5)
48 (5)
46 (7)
16 (4)
9 (4)
8
16
6
4
1
4
178 (29)
n/a1
86
103
256
59
68
64
636
6
15
14
1
2
5
43
1. We analysed some commodities in more than one location
2. Road and rail assessments were done at a country level and therefore not
individually quantified
Our physical risks – results
The assessments highlighted three key points:
1. Risks are high and increasing: the level of physical climate risk is
already relatively high and is projected to increase in all regions,
most severely in India, which accounts for the top 10 of our most
‘at risk’ activities. Risks ranged from medium to high in our top 10
most at-risk sites in each region.
2. All agricultural ingredients are at risk: all those we assessed are
subject to some degree of climate risk, with the risk set to increase
for most under the scenarios we analysed.
3. Water scarcity and high temperatures: water stress, drought and
high temperatures are our most significant risks.
50
Diageo Annual Report 2022
Overall, out of the 316 site/activity combinations we analysed, two are
currently classified as high risk, and 29 as medium-high. Under the
worst-case scenario, i.e. a temperature rise of 4-5⁰C, this rises to
11 high-risk site/activity combinations by 2050, and 42 medium-high.
Trajectory of physical risk from 316 site/activity combinations3
Combined number of sites/
Combined number of sites/
activities at medium-high risk,
activities at high risk, including %
including % of total site/activities
of total site/activities
Scenario
Present day
2030, 2-3°C (RCP 4.5)
2050, 2-3°C (RCP 4.5)
2030, 4-5°C (RCP 8.5)
2050, 4-5°C (RCP 8.5)
3. Scoring methodology
29 (9%)
28 (9%)
34 (11%)
32 (10%)
42 (13%)
2 (1%)
9 (3%)
10 (3%)
9 (3%)
11 (3%)
a) Relative risk score: the physical risk assessment results are reported as relative risk
scores (in comparison to the full sample of Diageo sites assessed) to help us
prioritise the sites for which we should create mitigation plans. High-risk sites are
above the 99th percentile; medium-high are in the 90th to 99th percentile; and
medium are in the 55th to 90th percentile.
b) Trajectory score: the risk assessment also produces trajectory scores for each of the
hazards assessed, indicating how they are expected to worsen or improve in the
scenario and time frame in question.
Physical risks in our supply chain
We focussed on three main areas in assessing risks to our supply chain,
with the results as follows:
• Suppliers’ assets: given the number and geographical spread of the
sites we assessed, we found a greater range of risks than for our
own sites. Nonetheless, as with our own sites, the most common
risks, and those forecast to get worse, were water stress and higher
temperatures. Other relevant risks, which may affect our packaging
components, were humidity and wildfires. The information about our
suppliers’ sites was also useful to our suppliers themselves, and
means we can work together to develop mitigation plans where it
makes sense to do so.
• Agricultural commodities: through the analysis, we produced a risk
register for each commodity (chosen for their strategic importance),
detailing possible risks, their severity, how we should respond (e.g.
whether to mitigate or transfer the risks), and control measures to
put in place. The map (on page 50) summarises the main climate
hazards to which our key commodities are exposed. Some (barley,
wheat, maize, for example), are easier to procure in multiple locations
than others (agave, for example); so the insights we’ve gained will
help us find ways to adapt what we do for the most sensitive crops,
and we will create contingency sourcing plans for the rest.
• Distribution routes: the analysis showed that in general, the risks to
ports came from water stress and changing temperatures, while the
risks to road networks were broader, including both chronic risks,
such as temperature increases and sea level rises, and acute risks,
such as storms, floods or wildfires. Both acute and chronic risks were
assessed to be higher in the warmer geographies (India, Africa,
Mexico and Turkey). The insights from this review will help us plan
effectively for any contingencies in our distribution routes that may
become necessary.
Summary of our key climate risks and opportunities
Risks
Physical risk results by region – Diageo and key third-party
supply sites
Overall, the main physical hazards we are exposed to are high
temperatures and water stress. High temperatures may cause risks to
employees’ health and productivity, as well as affecting our processes
(such as fermentation, which is sensitive to temperature variations) and
cost. For example, higher water temperatures mean higher costs of
cooling to the temperature we need to use water in our sites. Here we
summarise the key findings by region, which may affect both our own
and our suppliers’ sites, and our agricultural commodities and
packaging materials sourced in those regions.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Region
North America
Mexico
Scotland
Africa
Turkey
India
Risks increasing
• Wildfires
• Storm winds
• High temperatures
• Water temperature
• Water temperature
• Water stress
• Wildfires
• Water temperature
• Wildfires
• Water temperature
• High temperatures
• Rising sea level/
coastal flooding
• Water temperature
• High temperatures
• Rising sea level/
coastal flooding
• Water stress
• Extreme heat
Risks declining
• Cold temperatures
• Cold temperatures
• Cold temperatures
• Cold temperatures
• Cold temperatures
• Cold temperatures
Risk type
Category
Time frame
Trajectory
Impact (if not mitigated)
Response examples
Opportunities
Opportunity type
Category
Time frame
Trajectory
Impact (if not mitigated)
Response examples
Water scarcity
Increasing water stress and water
scarcity negatively affects our ability to
continue to produce beverages in areas
of high water stress
Physical – chronic
Short, medium, long
Increasing
Moderate1
• Improvements in water-use efficiency
• Water replenishment plans in 100%
of water-stressed areas
• Collective action programme to
reduce water use in ‘priority water
basins’
Input costs
Policy changes (carbon taxation, shift to
renewables) cause increases in input
costs, particularly glass
Transition – policy/legal
Short, medium
Increasing
Moderate1
• Supply chain decarbonisation
• Engaging suppliers in alternative
technologies for low-carbon
operations
Consumer behaviour
Consumers prioritise purchasing more
sustainable products, rejecting products
perceived to have a negative
environmental impact
Transition – market
Short, medium, long
Increasing
Moderate1
• Packaging weight reduction
• Increased recycled content in
packaging
• Developing circular product offerings
• Exploring technologies for reducing
(refill, reuse)
packaging weight
Supply chain decarbonisation
Reducing our Scope 1, 2, and 3 emissions reduces our exposure
to carbon taxes and related costs, and improves our reputation
with customers and consumers
Transition – policy/legal
Short, medium
Increasing
Moderate1
• ‘Society 2030: Spirit of Progress’ goals for Scope 1, 2 and 3
emissions
• Decarbonisation programme and capital investment
• Renewable energy and regenerative agriculture
Innovation in sustainable product offerings
Developing more sustainable products (lighter weight, higher
recycled content, more refillable and reusable containers)
meets consumers’ increasing demands
Transition – market
Short, medium
Increasing
Moderate1
• ‘Society 2030: Spirit of Progress’ goals for sustainable
packaging
• Innovation to deliver more sustainable products
1.
’Low’ impact is defined as having a negligible impact on customer service, or an absorbable disruptive impact on one or more brands. ‘Moderate’ impact is defined as disruption to
production/supply chain creating an inability to service a small portion of our customer base, the impact of which is manageable; or a significant short-term impact on one or more of our
core or local priority brands that is absorbable by the business. ’High’ impact is defined as an inability to service a significant portion of our customer base, or major reputational damage.
Diageo Annual Report 2022
51
Responding to climate-related risks continued
Identifying our transition risks and opportunities
In 2021, alongside our physical risk analysis for North America and
Scotland, we also analysed, as defined by TCFD, the risks1 and
opportunities2 in those regions of transitioning to a low-carbon
economy. In doing so, we found that there were some opportunities as
well as risks, and we concluded that most of these risks/opportunities
were generally applicable to other regions as well. This year, we
reviewed that analysis based on the latest insights from our working
groups, and concluded that overall, the risks/opportunities identified
in the 2021 assessment were still appropriate.
Our transition risks and opportunities – results
The purpose of carrying out a transition risk assessment across our
operations and value chain is to uncover our risks, strengthen our
resilience, capitalise on opportunities and, ultimately, in the face of the
changing market dynamics as we transition to a low-carbon economy,
help us both protect and grow our business. The assessment examined
our agricultural inputs, our production and packaging, and our
distribution and sales channels. The greatest risks and opportunities
were found to be in packaging and sales, respectively. In packaging,
shifting to low-carbon production may well mean higher costs; we may
also be subject to higher taxes, and need to meet requirements for
more light-weighting, redesign, recycling and recycled content. On the
positive side, however, there are potential sales opportunities for those
businesses that offer consumers more sustainable products, making
greater use of recycling, reuse and returnable products.
We identified 150 risks and opportunities overall, and assessed 105 that
were relevant to our business. From this list we identified 24 that we
need to manage, and, of those 24, identified those with the most
potential impact on our business. These were:
• Policy and legal risks included carbon taxation, and legal and
social considerations relating to land use, agricultural material use
and water use.
• Market and reputation risks and opportunities related to GDP
reduction, consumer rejection of particular brands, categories,
materials or supply chains due to their perceived environmental
impact, and consumers switching to more sustainable products.
• Technology risks and opportunities related to the decarbonisation
of our supply chain and those of our suppliers.
Strategy
We have adopted the TCFD’s recommendations for
reporting on strategy, although we have included the
identification of risks and opportunities in the risk
management section since they are easier to understand in
that context.
We have a long history of creating world-class drinks experiences for
consumers across the world, from a wide range of natural ingredients.
Over the years, we have become more expert at managing scarce
resources, particularly water, and adapting production of our drinks to
use alternative ingredients when necessary. This is reflected in one of
our six strategic priorities, ‘pioneering grain-to-glass sustainability’.
The insights we’ve gained from our recent work to identify the risks
and opportunities from climate change is informing our strategy
through the next stage of the process – scenario analysis based on
those risks and opportunities. This analysis, carried out with the help
of external experts, aims to estimate the financial impact of climate
change on our business. Because of the limitations of climate risk
scenario analysis, any estimate will have limitations; in fact, perhaps the
greatest benefit of scenario analysis is that it helps us to understand
where risks and opportunities are most likely to materialise, to
understand trends, and to integrate them into our strategy.
The limitations of climate change scenario analysis
Any scenario analysis is limited by the variables and assumptions
included in the model, but it is particularly difficult with climate change.
This is because of the considerable uncertainties in how the physical
risks will play out under different temperature scenarios in different
parts of the world, and the considerable uncertainties in how far and
how quickly the world will be able to introduce the changes needed to
limit the rise in temperature. No single scenario is likely to materialise in
the coming decades by itself, and we are all likely to be exposed to
both physical and transition risks as the world continues to warm as a
consequence of emissions already in the atmosphere. The pathway to
reducing emissions is also highly variable, as governments and industry
pursue a variety of means, such as introducing regulation and
developing new technologies. But, whatever the pathway, we are
committed to playing our part in fighting climate change, through
delivering our ‘Society 2030: Spirit of Progress’ goals.
Summary of scenario analysis results
We analysed three temperature increase scenarios. The first envisages
a successful transition to a low-carbon economy in time to keep the
temperature rise to 1-2⁰C by 2100, and assumes a variety of
decarbonisation challenges and opportunities relating to ingredients,
energy, packaging and transport costs, and changes in demand for
our products (to 2030 and 2050). The other two look at the likely
effects of varying degrees of continued warming, and the impacts that
will arise from the physical risks this presents (to 2030 and 2050). We
looked at a moderate warming scenario (temperature rise of 2-3⁰C),
and a severe warming scenario (temperature rise of 4-5⁰C). For both
these warming scenarios, we assessed our assets, supply chain and
critical ingredients for financial vulnerability to physical risk.
As discussed in detail below, the impacts of climate change are broad,
and in many cases difficult to predict with certainty; however, some
consistent themes have emerged. First, it is highly likely that we will be
exposed to both transition and physical risks, and therefore should be
prepared for both; and second, that the main impacts on our business,
under any of these scenarios, are likely to come from water stress, the
cost of decarbonisation and consumer demand for more sustainable
offerings, although none of these are expected to have a material
impact on the results of our operations, or on our financial condition
by 2030. Our priorities should therefore continue to be to decarbonise
our supply chain, adapt to water stress in water-stressed areas, and
develop more sustainable products, to continue to reduce our impact
on the environment. These will help us mitigate the risks and prevent
them from becoming material to our financial performance.
The potential impacts of climate change are evolving all the time, and
we need to stay on top of them in our planning. In the coming year,
we aim to cover those countries we have not yet assessed; and we will
continue to refresh our analysis of water stress and update our scenario
analyses regularly. We will also continue to research consumers’
attitudes to sustainability, and develop more environmentally friendly
products – e.g. increasing the use of recycled content in packaging,
and reducing the amount of packaging material we use.
As one example of a step change towards our ‘Society 2030: Spirit of
Progress’ goals, in 2020 we launched Diageo Sustainable Solutions
(DSS). This global programme involves partnering with early- to
mid-stage technology businesses to find and apply cutting-edge
technology in our supply chain – covering agriculture, energy,
packaging, waste and water.
1. The TCFD’s definition of transition risks: policy and legal, market, reputation, technology
2. The TCFD’s definition of transition opportunities: resource efficiency, energy source, products/services, markets, resilience
52
Diageo Annual Report 2022
Responding to climate-related risks continued
Identifying our transition risks and opportunities
The limitations of climate change scenario analysis
In 2021, alongside our physical risk analysis for North America and
Any scenario analysis is limited by the variables and assumptions
Scotland, we also analysed, as defined by TCFD, the risks1 and
opportunities2 in those regions of transitioning to a low-carbon
included in the model, but it is particularly difficult with climate change.
This is because of the considerable uncertainties in how the physical
economy. In doing so, we found that there were some opportunities as
risks will play out under different temperature scenarios in different
well as risks, and we concluded that most of these risks/opportunities
parts of the world, and the considerable uncertainties in how far and
were generally applicable to other regions as well. This year, we
how quickly the world will be able to introduce the changes needed to
reviewed that analysis based on the latest insights from our working
limit the rise in temperature. No single scenario is likely to materialise in
groups, and concluded that overall, the risks/opportunities identified
the coming decades by itself, and we are all likely to be exposed to
in the 2021 assessment were still appropriate.
Our transition risks and opportunities – results
The purpose of carrying out a transition risk assessment across our
operations and value chain is to uncover our risks, strengthen our
resilience, capitalise on opportunities and, ultimately, in the face of the
changing market dynamics as we transition to a low-carbon economy,
help us both protect and grow our business. The assessment examined
our agricultural inputs, our production and packaging, and our
distribution and sales channels. The greatest risks and opportunities
were found to be in packaging and sales, respectively. In packaging,
shifting to low-carbon production may well mean higher costs; we may
also be subject to higher taxes, and need to meet requirements for
more light-weighting, redesign, recycling and recycled content. On the
positive side, however, there are potential sales opportunities for those
businesses that offer consumers more sustainable products, making
greater use of recycling, reuse and returnable products.
We identified 150 risks and opportunities overall, and assessed 105 that
were relevant to our business. From this list we identified 24 that we
need to manage, and, of those 24, identified those with the most
potential impact on our business. These were:
• Policy and legal risks included carbon taxation, and legal and
social considerations relating to land use, agricultural material use
and water use.
• Market and reputation risks and opportunities related to GDP
reduction, consumer rejection of particular brands, categories,
materials or supply chains due to their perceived environmental
impact, and consumers switching to more sustainable products.
• Technology risks and opportunities related to the decarbonisation
of our supply chain and those of our suppliers.
Strategy
We have adopted the TCFD’s recommendations for
reporting on strategy, although we have included the
identification of risks and opportunities in the risk
management section since they are easier to understand in
that context.
We have a long history of creating world-class drinks experiences for
consumers across the world, from a wide range of natural ingredients.
Over the years, we have become more expert at managing scarce
resources, particularly water, and adapting production of our drinks to
use alternative ingredients when necessary. This is reflected in one of
our six strategic priorities, ‘pioneering grain-to-glass sustainability’.
The insights we’ve gained from our recent work to identify the risks
and opportunities from climate change is informing our strategy
through the next stage of the process – scenario analysis based on
those risks and opportunities. This analysis, carried out with the help
of external experts, aims to estimate the financial impact of climate
change on our business. Because of the limitations of climate risk
scenario analysis, any estimate will have limitations; in fact, perhaps the
greatest benefit of scenario analysis is that it helps us to understand
where risks and opportunities are most likely to materialise, to
understand trends, and to integrate them into our strategy.
both physical and transition risks as the world continues to warm as a
consequence of emissions already in the atmosphere. The pathway to
reducing emissions is also highly variable, as governments and industry
pursue a variety of means, such as introducing regulation and
developing new technologies. But, whatever the pathway, we are
committed to playing our part in fighting climate change, through
delivering our ‘Society 2030: Spirit of Progress’ goals.
Summary of scenario analysis results
We analysed three temperature increase scenarios. The first envisages
a successful transition to a low-carbon economy in time to keep the
temperature rise to 1-2⁰C by 2100, and assumes a variety of
decarbonisation challenges and opportunities relating to ingredients,
energy, packaging and transport costs, and changes in demand for
our products (to 2030 and 2050). The other two look at the likely
effects of varying degrees of continued warming, and the impacts that
will arise from the physical risks this presents (to 2030 and 2050). We
looked at a moderate warming scenario (temperature rise of 2-3⁰C),
and a severe warming scenario (temperature rise of 4-5⁰C). For both
these warming scenarios, we assessed our assets, supply chain and
critical ingredients for financial vulnerability to physical risk.
As discussed in detail below, the impacts of climate change are broad,
and in many cases difficult to predict with certainty; however, some
consistent themes have emerged. First, it is highly likely that we will be
exposed to both transition and physical risks, and therefore should be
prepared for both; and second, that the main impacts on our business,
under any of these scenarios, are likely to come from water stress, the
cost of decarbonisation and consumer demand for more sustainable
offerings, although none of these are expected to have a material
impact on the results of our operations, or on our financial condition
by 2030. Our priorities should therefore continue to be to decarbonise
our supply chain, adapt to water stress in water-stressed areas, and
develop more sustainable products, to continue to reduce our impact
on the environment. These will help us mitigate the risks and prevent
them from becoming material to our financial performance.
The potential impacts of climate change are evolving all the time, and
we need to stay on top of them in our planning. In the coming year,
we aim to cover those countries we have not yet assessed; and we will
continue to refresh our analysis of water stress and update our scenario
analyses regularly. We will also continue to research consumers’
attitudes to sustainability, and develop more environmentally friendly
products – e.g. increasing the use of recycled content in packaging,
and reducing the amount of packaging material we use.
As one example of a step change towards our ‘Society 2030: Spirit of
Progress’ goals, in 2020 we launched Diageo Sustainable Solutions
(DSS). This global programme involves partnering with early- to
mid-stage technology businesses to find and apply cutting-edge
technology in our supply chain – covering agriculture, energy,
packaging, waste and water.
1. The TCFD’s definition of transition risks: policy and legal, market, reputation, technology
2. The TCFD’s definition of transition opportunities: resource efficiency, energy source, products/services, markets, resilience
52
Diageo Annual Report 2022
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
In looking for bigger, bolder ideas and solutions that can transform
sustainability in all areas of our products, DSS allows us to do far more
than we could do on our own. At the launch of the programme, we
published four challenges, and received more than 280 applications,
of which we reviewed 30 pitches. We chose six partners for the first
cohort, and are currently piloting their technologies. In December 2021,
we published another four much more specific packaging challenges,
around alternative formats and reusable technology, and received 73
applications. We shortlisted 27, and are currently finalising the choice
of projects for pilots.
Results of analysis of warming scenarios – effects of
physical risk
As discussed on the previous page, we analysed the likely effects of the
physical risks of two warming scenarios on the financial performance
of our business, projected to 2030 and 2050. To calculate the financial
impact, we assessed the value of the assets at risk, the likely loss of
either asset or sales value in a year as a result of a risk materialising,
and then calculated the total loss in value in each of 2030 and 2050.
Importantly, the scenarios assumed that we will have taken no
mitigating actions in the meantime. The risks are characterised as
acute or chronic. Chronic risks include changes in temperature and
precipitation that may cause increased water stress, water scarcity
or decreased water quality, or may impact our ability to source
agricultural materials. Acute risks include floods and storms, which
may impact our sites, or the supply of raw materials and ingredients.
The results showed that overall, our sites are likely to be resilient to
acute weather events, like floods and storms, although we are more
exposed to the acute risk of drought, and to chronic changes like water
scarcity. Indeed, water scarcity is the biggest climate-related risk to our
financial performance, since we have many sites in water-stressed
areas that may not be able to continue production at current levels
should these temperature scenarios play out. Those sites most likely to
be affected are in India, Mexico, Turkey and North America, with all of
our production sites in Mexico likely to be exposed to extremely high
water stress.
Under the medium warming scenario, the number of our production
sites and thus our sales exposed to extremely high water stress is
unlikely to change from the situation today, either by 2030 or by 2050.
But, should the severe warming scenario occur, even though the
number of sites affected won’t change, those that are affected are
likely to suffer even greater shortages of water, under both time frames.
They will also have a greater impact on the health and wellbeing of
employees at those sites. Flooding and storms are the next most likely
physical risks to affect our financial performance, since they may
damage our sites or disrupt our supply of agricultural commodities,
and the price of most of the commodities we analysed is set to
increase under these scenarios. The only physical risk likely to affect
our operations or financial condition in any material way is drought,
given our reliance on water to make our products.
Modelling the financial impact of drought is particularly difficult
because there are many factors at play, not least the probability of
drought occurring, the length of time operations would have to be
suspended, the impact of any adaptation or contingency measures,
and so on. Nonetheless, we have modelled what we can, using both
the standard external models and our own analyses, and considering
severe but plausible assumptions (e.g. concurrent downtime in all
water-stressed sites due to drought). We concluded that, by 2030,
drought is not expected to have a material impact on the results of
our operations, or on our financial condition.
Beyond 2030 it is much harder to analyse, given the lengthy time
frame; however, our models show that if we take no mitigating actions,
by 2050 drought could have a material impact on the results of our
operations, or on our financial condition.
This is why it is so important that we focus on water stress in our
strategic planning.
How we are mitigating physical risks
Our physical risk scenario analysis confirmed that, of all the physical
risks of climate change, we are most exposed to water stress; and that
we are most exposed in India and Mexico, as well as North America,
Turkey and Africa. This serves to reinforce our commitments to using
less water, and replenishing more water than we use, in areas of water
stress. Water is a shared resource, so we cannot tackle water stress
alone; this is why we launched the Diageo Collective Action
Programme in 2020. Through this programme, we are working with
partners in ‘priority water basins’ (areas suffering particular water
stress, and which are strategically important) where our sites are
located, namely 14 sites across 12 priority water basins in 10 countries.
For more on our water replenishment and collective action work,
see pages 30-31.
Results of analysis of transition scenario –
risks and opportunities
As discussed above, the successful transition to a low-carbon economy,
which assumes we meet the Paris Agreement target of limiting global
warming to 1-2⁰C, brings both risks and opportunities. To help us model
the potential impacts on our financial performance, we worked with an
external expert in this type of modelling.
Methodology for analysing the transition scenario
We looked at two potential scenarios, and compared the likely
difference in cash flows to 2030 and 2050:
• Baseline scenario: some drivers of the transition scenario, such
as policy intentions and national targets, are already in place.
This scenario therefore aims to analyse what the effects of these
elements would be, insofar as they are backed up by detailed
measures for their realisation, as well as other market trends and
expectations that can be inferred from available data and analysis.
• Transition scenario assuming we reach net zero emissions by 2050:
this sets out a narrow but achievable pathway for the global energy
sector to achieve net zero emissions by 2050, alongside necessary
changes in all other sectors of the economy to limit global warming
to 1-2⁰C.
Both scenarios are based on a combination of internal and external
models and data.
• External models: we used a variety of scenarios developed
by the International Energy Agency (IEA), the IPCC and various
other institutions.
• Internal models: for each of our product categories, we looked at
production costs and margins; sales and consumption by region;
and expected growth. It was important to look at each product
category separately because they are exposed to different types
of transition risk.
Together, these models gave us a range of plausible assumptions
designed to capture a trajectory of changes in demand, costs, prices,
regulation, technology, and capital investments in relevant markets
and business segments, that could result in the world achieving net
zero by 2050. We looked at how combinations of these changes might
affect us both positively (increased demand for sustainable products)
and negatively (higher costs), and estimated the combined effect on
our cashflow to both 2030 and 2050.
Outlined in the table on page 54 are the materials that most affect our
input costs, which may go up or down depending on the situation. We
have modelled the costs based on our exposure to global versus local
changes; so, for example, glass and aluminium are procured globally,
while the cost of energy, for example, is always local.
Diageo Annual Report 2022
53
Responding to climate-related risks continued
Input costs assessed in the scenario analysis by geography
Global
•
•
•
•
Region
Glass
Aluminium
Land transport
Ocean transport
Energy
Electricity
Raw materials
•
•
•
•
•
Barley
Wheat
Maize
Rice
Sorghum
Sugar
Vanilla
Anise
Agave
Grapes
UK
US
Canada Mexico
Turkey
India
Africa
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
For each scenario, we then estimated the prices of major input costs,
where relevant by geography, and modelled the impact they would
have on our operating profit.
Transition risk and opportunity scenario analysis – findings
Transitioning to a low-carbon economy would generate both risks and
opportunities for Diageo, and through our scenario analysis we have
estimated the impact on our operations and financial condition to
2030, concluding that it is unlikely to be material by that date, even
assuming all changes in production costs were borne by us. This is
reflected in our assessment of viability and impairment (see page 46).
We have not calculated the financial impact to 2050 because there
are too many variables and unknowns to make such a calculation
meaningful. However, what we do know is what the drivers are –
namely water stress, decarbonising our supply chain and increasing
demand from consumers for sustainable products. Within these drivers,
the biggest cost comes from decarbonising the supply chain, and
much of that comes from the price of glass, an important component
of many of our products’ packaging. The cost of glass is likely to
continue to rise, pushing unit production costs up, even while other
costs may generally decline over the longer term. While the impact on
Diageo as modelled may not be material to 2030, the planet needs
significant science-based action to create a sustainable low-carbon
future. Therefore we have committed to decarbonising our own
operations and partnering with our suppliers to halve the carbon
emissions from our supply chain by 2030. For more on our plans to
decarbonise our supply chain, please see the metrics and targets
section (pages 54-55).
The scenario analysis gave us insights into which parts of our business
would be most affected by transition risk. The markets most likely to be
affected are India and Mexico, because of the high relative impact of
packaging costs on overall profitability. Looking at product categories,
Scotch whisky and tequila are most likely to be affected — because
they can be produced only in Scotland and Mexico respectively, but
are imported into many countries around the world, and are packaged
mainly in glass. And today, consumers are increasingly sensitive to the
perceived environmental impacts of imported products. Although not
financially quantified, these changes in consumer behaviour could
potentially result in lost revenue and profit, if we do not respond.
However, there is an opportunity for companies that innovate, and
that develop and produce drinks in a more sustainable way, for
example through packaging reduction, reuse and recycling.
Δ Within PwC’s independent limited assurance scope. Please refer to the reporting
methodologies in our ESG Reporting Index for more information on how data has been
compiled, including standards and assumptions used.
54
Diageo Annual Report 2022
Metrics and targets1
We have adopted the TCFD’s recommendations for
reporting on metrics and targets.
We are committed to playing our part in transitioning to a low-carbon
world and making a positive impact on the environment. Our ‘Society
2030: Spirit of Progress’ ambition includes stretching goals for
decarbonising our operations and supply chain, and for water efficiency
and replenishment. The figure (on page 55) outlines our pathway to
net zero carbon emissions. Our annual targets to achieve net zero by
2030 in our Scope 1 and 2 emissions have been validated by the
Science Based Targets initiative (SBTi). We have an interim target of a
50% reduction in Scope 3 emissions by 2030, and our Scope 3 target
of net zero by 2050 has also been validated by the SBTi.
Science-based targets for carbon emissions
By 2030, we commit to:
Target
KPI
Becoming carbon net zero
in our direct operations
(Scopes 1 and 2)
Percentage reduction in
absolute GHG (ktCO2e)
Reducing our value chain
(Scope 3) emissions by 50%
Percentage reduction in
absolute GHG (ktCO2e)
Using 100% renewable energy
across our direct operations
Percentage of renewable
energy across our direct
operations
2022
performance
5.3%Δ
(4.7)%2
41.2%
This year we achieved a further 5.3%Δ reduction in emissions from our
direct operations, which keeps us on track to achieve net zero by 2030.
However, increased production volumes across many of our markets is
making it even more challenging to meet our net zero targets, so we
reviewed our net zero roadmap and adjusted our interim
decarbonisation trajectory accordingly. Our value chain Scope 3
emissions increased by 4.7%, mainly due to increased production and
the associated increased use of raw materials, packaging, third-party
operations and neutral-spirit sourcing. We recognise that this target is
challenging given the complexities of enabling impactful change up
and down the value chain, and we must work closely with suppliers,
peers and others to ensure we meet this target.
Carbon emissions (Scopes 1 and 2) by region by year
(1,000 tonnes CO2e)3,4,5
Region
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo (total)
United Kingdom
2020
(baseline)
128
153
37
151
23
492
87
2021
127
130
15
172
28
472
71
2022
100
145
14
150
38
447Δ
84
1. Baseline year for ‘Society 2030: Spirit of Progress’ targets is 2020 unless otherwise stated
2. For commentary on performance against this target, please see page 37 and refer to
our reporting methodologies in the ESG Reporting Index for more information on how
data has been compiled, including standards and assumptions used
3. CO2e figures are calculated using the WRI/WBCSD GHG Protocol guidance available
at the beginning of our financial year; the kWh/CO2e conversion factor provided by
energy suppliers; the relevant factors to the country of operation; or the International
Energy Agency, as applicable
4. 2020 baseline data, and data for the periods ended 30 June 2021, have been restated
in accordance with the WRI/WBCSD GHG Protocol and Diageo’s environmental
reporting methodologies
5. Diageo UK total direct and indirect carbon emissions were 8,484ktCO2e, comprising
direct emissions (Scope 1) of 84ktCO2e and indirect emissions (Scope 2) of 0. The
intensity ratio was 80 grams/litre packaged. Total global energy consumption was
3,650,444MWh; total UK energy consumption was 1,091,403MWh, comprising
951,552MWh of direct energy and 139,851MWh of indirect energy.
For each scenario, we then estimated the prices of major input costs,
where relevant by geography, and modelled the impact they would
(Scopes 1 and 2)
have on our operating profit.
Responding to climate-related risks continued
Input costs assessed in the scenario analysis by geography
Global
UK
US
Canada Mexico
Turkey
India
Africa
•
•
•
•
•
•
•
•
•
Region
Glass
Aluminium
Land transport
Ocean transport
Energy
Electricity
Raw materials
Barley
Wheat
Maize
Rice
Sorghum
Sugar
Vanilla
Anise
Agave
Grapes
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Transition risk and opportunity scenario analysis – findings
Transitioning to a low-carbon economy would generate both risks and
opportunities for Diageo, and through our scenario analysis we have
estimated the impact on our operations and financial condition to
2030, concluding that it is unlikely to be material by that date, even
assuming all changes in production costs were borne by us. This is
reflected in our assessment of viability and impairment (see page 46).
We have not calculated the financial impact to 2050 because there
are too many variables and unknowns to make such a calculation
meaningful. However, what we do know is what the drivers are –
namely water stress, decarbonising our supply chain and increasing
demand from consumers for sustainable products. Within these drivers,
the biggest cost comes from decarbonising the supply chain, and
much of that comes from the price of glass, an important component
of many of our products’ packaging. The cost of glass is likely to
continue to rise, pushing unit production costs up, even while other
costs may generally decline over the longer term. While the impact on
Diageo as modelled may not be material to 2030, the planet needs
significant science-based action to create a sustainable low-carbon
future. Therefore we have committed to decarbonising our own
operations and partnering with our suppliers to halve the carbon
emissions from our supply chain by 2030. For more on our plans to
decarbonise our supply chain, please see the metrics and targets
section (pages 54-55).
The scenario analysis gave us insights into which parts of our business
would be most affected by transition risk. The markets most likely to be
affected are India and Mexico, because of the high relative impact of
packaging costs on overall profitability. Looking at product categories,
Scotch whisky and tequila are most likely to be affected — because
they can be produced only in Scotland and Mexico respectively, but
are imported into many countries around the world, and are packaged
mainly in glass. And today, consumers are increasingly sensitive to the
perceived environmental impacts of imported products. Although not
financially quantified, these changes in consumer behaviour could
potentially result in lost revenue and profit, if we do not respond.
However, there is an opportunity for companies that innovate, and
that develop and produce drinks in a more sustainable way, for
example through packaging reduction, reuse and recycling.
Δ Within PwC’s independent limited assurance scope. Please refer to the reporting
methodologies in our ESG Reporting Index for more information on how data has been
compiled, including standards and assumptions used.
54
Diageo Annual Report 2022
Metrics and targets1
We have adopted the TCFD’s recommendations for
reporting on metrics and targets.
We are committed to playing our part in transitioning to a low-carbon
world and making a positive impact on the environment. Our ‘Society
2030: Spirit of Progress’ ambition includes stretching goals for
decarbonising our operations and supply chain, and for water efficiency
and replenishment. The figure (on page 55) outlines our pathway to
net zero carbon emissions. Our annual targets to achieve net zero by
2030 in our Scope 1 and 2 emissions have been validated by the
Science Based Targets initiative (SBTi). We have an interim target of a
50% reduction in Scope 3 emissions by 2030, and our Scope 3 target
of net zero by 2050 has also been validated by the SBTi.
Science-based targets for carbon emissions
By 2030, we commit to:
Target
KPI
Becoming carbon net zero
in our direct operations
Percentage reduction in
absolute GHG (ktCO2e)
2022
performance
5.3%Δ
Reducing our value chain
(Scope 3) emissions by 50%
Percentage reduction in
absolute GHG (ktCO2e)
(4.7)%2
Using 100% renewable energy
Percentage of renewable
41.2%
across our direct operations
energy across our direct
operations
This year we achieved a further 5.3%Δ reduction in emissions from our
direct operations, which keeps us on track to achieve net zero by 2030.
However, increased production volumes across many of our markets is
making it even more challenging to meet our net zero targets, so we
reviewed our net zero roadmap and adjusted our interim
decarbonisation trajectory accordingly. Our value chain Scope 3
emissions increased by 4.7%, mainly due to increased production and
the associated increased use of raw materials, packaging, third-party
operations and neutral-spirit sourcing. We recognise that this target is
challenging given the complexities of enabling impactful change up
and down the value chain, and we must work closely with suppliers,
peers and others to ensure we meet this target.
Carbon emissions (Scopes 1 and 2) by region by year
(1,000 tonnes CO2e)3,4,5
Region
North America
Europe
Asia Pacific
Africa
Diageo (total)
United Kingdom
Latin America and Caribbean
2020
(baseline)
128
153
37
151
23
492
87
2021
127
130
15
172
28
472
71
2022
100
145
14
150
38
447Δ
84
1. Baseline year for ‘Society 2030: Spirit of Progress’ targets is 2020 unless otherwise stated
2. For commentary on performance against this target, please see page 37 and refer to
our reporting methodologies in the ESG Reporting Index for more information on how
data has been compiled, including standards and assumptions used
3. CO2e figures are calculated using the WRI/WBCSD GHG Protocol guidance available
at the beginning of our financial year; the kWh/CO2e conversion factor provided by
energy suppliers; the relevant factors to the country of operation; or the International
Energy Agency, as applicable
4. 2020 baseline data, and data for the periods ended 30 June 2021, have been restated
in accordance with the WRI/WBCSD GHG Protocol and Diageo’s environmental
reporting methodologies
5. Diageo UK total direct and indirect carbon emissions were 8,484ktCO2e, comprising
direct emissions (Scope 1) of 84ktCO2e and indirect emissions (Scope 2) of 0. The
intensity ratio was 80 grams/litre packaged. Total global energy consumption was
3,650,444MWh; total UK energy consumption was 1,091,403MWh, comprising
951,552MWh of direct energy and 139,851MWh of indirect energy.
Water efficiency (litres per litre packaged) by region by year1,2
Region
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo (total)
2020
(baseline)
5.33
5.10
3.95
4.11
4.93
4.63
2021
4.91
5.13
3.58
3.53
5.07
4.29
2022
5.06
4.87
3.57
3.29
4.86
4.13Δ
S
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1. 2020 baseline data, and data for the periods ended 30 June 2021, have been restated
in accordance with the WRI/WBCSD GHG Protocol and Diageo’s environmental
reporting methodologies
In accordance with our environmental reporting methodologies, total water used
excludes irrigation water for agricultural purposes on land under our operational control
2.
Δ Within PwC’s independent limited assurance scope. Please refer to the reporting
methodologies in our ESG Reporting Index for more information on how data has been
compiled, including standards and assumptions used.
This year we achieved a 7.8% improvement in water-use efficiency in
water-stressed areas and a 3.7%Δ improvement across the company,
which are on track against our 2030 targets. We report on our
performance against our ‘Society 2030: Spirit of Progress’ targets in
full on pages 35-38. Our overall approach to risk management is
described further on pages 42-45. A commitment to pioneering
grain-to-glass sustainability is central to our strategy – read about our
approach on pages 30-31. Our ESG Reporting Index contains more
detailed disclosures aligned with the GRI, SASB and UN Global
Compact reporting frameworks.
Water efficiency and replenishment targets
As a beverage business, water stewardship is critical if we are to
adapt successfully to a changing climate, as outlined in the risk
management section on pages 42-45. We carry out global
assessments of water stress every two to three years, and any sites
newly classified as water stressed are included in our more stretching
targets for water efficiency and replenishment. The last assessment
was conducted in fiscal 21.
We have set a number of water targets for 2030 or earlier, focussing
particularly on water-stressed areas:
Target
KPI
Reduce water use in our operations
with a 40% improvement in water–
use efficiency in water-stressed
areas and a 30% improvement
across the company
Percentage
improvement in litres
of water used per
litre of packaged
product
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
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
2022
performance
3.7%Δ
across
the
company
15.3%
88.9%Δ
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
participating in our
collective action plans
33.3%
Pathway to net zero1
2008
2015
2020
2021
2025
2030
2050 or
earlier
Milestone
Target
Delivery
Pathway to delivery
GHG targets
set for 2015
GHG targets
set for 2020
‘Society 2030:
Spirit of Progress’
(SOP) targets set
Targets
approved by
the SBTi
2015 targets
-50%
Scopes 1&2
2020 targets
-50%
Scopes 1&2
-30% Scope 3
-33.3%
Scopes 1&2
Baseline = 2007
-50.1% Scopes 1&2
-33.7% Scopes 1-3
Baseline = 2007
SOP 2030
targets due
Scope 3 net
zero targets due
Scope 1: net zero
Scope 2: net zero
Scope 3: -50%
Scope 1: net zero
Scope 2: net zero
Scope 3: net zero
Baseline = 2020
Scope 1 (8%)2
Decarbonisation of direct operations through biomass, bioenergy and electrification as part of our £1 billion
investment of capital expenditure in environmental sustainability
Renewable energy certificates to close gap
New technologies and partnerships
to close remaining gap
Scope 2 (2%)2
Continue switch to renewable electricity
Investment and partnership with governments and utilities to create required renewable infrastructure
100% renewable
electricity
Scope 3 (90%)2
Packaging: decarbonising glass manufacturing; reducing pack weights; increasing recycling and recycled content; circular packaging
Regenerative agriculture pilots Regenerative agriculture scale-up
Reduce emissions from logistics, product refrigeration and cooling
Diageo Sustainable Solutions (DSS) technology partnerships with suppliers to decarbonise the end-to-end supply chain, e.g. pilot study on innovative glass coatings
to enable radical glass light-weighting; and the development of innovative biofuel technology and heat energy storage solutions
1. This is an estimate based on current management expectations; the underlying assumptions and future developments may change over time, which would cause changes to
management expectations and the information contained herein. Please see pages 47-56 for further information about the potential impact of climate change on Diageo and our current
plans to manage and mitigate risks.
2. Percentage of total carbon footprint
Diageo Annual Report 2022
55
Responding to climate-related risks continued
How we have adopted the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD)
This table outlines how we have reported in line with the recommendations of TCFD and where we have more to do. Each year, with the
help of expert partners, we expand the scope of our risk assessments and scenario analysis. The order of the table reflects the order in which
we report on each recommendation.
TCFD recommendation
Governance — see page 48
a. Describe the board’s oversight of climate-related risks and opportunities
b. Describe management’s role in assessing and managing climate-related risks
and opportunities
Risk management — see pages 48-52
a. Describe the organisation’s processes for identifying and assessing
climate-related risks
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 52-54
a. Describe the climate-related risks and opportunities the organisation has
identified over the short, medium and long term
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
Alignment
Yes
Yes
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.
Metrics and targets — see pages 54-55
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
56
Diageo Annual Report 2022
Responding to climate-related risks continued
Group financial review
Fiscal 22 organic net sales were up 21%, with all
regions contributing double-digit top-line growth
How we have adopted the recommendations of the Task Force on Climate-related
This table outlines how we have reported in line with the recommendations of TCFD and where we have more to do. Each year, with the
help of expert partners, we expand the scope of our risk assessments and scenario analysis. The order of the table reflects the order in which
Financial Disclosures (TCFD)
we report on each recommendation.
TCFD recommendation
Governance — see page 48
Alignment
a. Describe the board’s oversight of climate-related risks and opportunities
b. Describe management’s role in assessing and managing climate-related risks
Yes
and opportunities
Risk management — see pages 48-52
a. Describe the organisation’s processes for identifying and assessing
climate-related risks
b. Describe the organisation’s processes for managing climate-related risks
Yes
c. Describe how processes for identifying, assessing and managing climate-
related risks are integrated into the organisation’s overall risk management
Strategy — see pages 52-54
a. Describe the climate-related risks and opportunities the organisation has
identified over the short, medium and long term
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 54-55
a. Disclose the metrics used by the organisation to assess climate-related risks
Yes
and opportunities in line with its strategy and risk management process
b. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG)
Yes for Scopes 1, 2 and 3
emissions and the related risks
c. Describe the targets used by the organisation to manage climate-related risks
Yes
and opportunities and performance against targets
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.
“Our business delivered strong performance across all key financial
metrics. Organic net sales grew double-digit, with growth across all
categories and our super-premium-plus portfolio grew 31%. In an
environment of high cost inflation, we delivered strategic price increases
across all regions while growing volume and market share. Organic
operating margin expanded 121bps, benefitting from leverage on
operating costs, pricing, favourable mix and productivity savings while
investing in marketing spend ahead of net sales.
Supported by double-digit operating profit growth, our cash generation
continues to be strong. We generated £2.8 billion of free cash flow.
Summary financial information
Volume
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items1
Operating profit
Share of associate and joint venture profit after tax
Non-operating exceptional items1
Net finance charges
Exceptional taxation credit/(charge)1
Tax rate including exceptional items
Tax rate before exceptional items
Profit attributable to parent company’s shareholders
Basic earnings per share
Basic earnings per share before exceptional items
Recommended full year dividend
1. For further details of exceptional items, see pages 156-157
S
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Reported net sales increased
21.4%
driven by organic growth
Reported operating profit
was up
18.2%
driven by growth in organic operating
profit, partially offset by the negative
impact of exceptional operating items.
Organic results improved with
volume growth of
10.3%
Organic net sales growth1 of
21.4%
Organic operating profit1 grew
26.3%
Net cash from operating
activities was
£3.9bn
Free cash flow1 was
£2.8bn
Basic eps of
140.2p
was up 23.2%
Eps before exceptional
items1 increased
29.3%
to 151.9 pence
We stepped up marketing and capital investment in the business, to
deliver long-term sustainable organic growth. We continue to actively
manage our portfolio, to increase our presence in fast-growing categories
and occasions. We are a progressive dividend payer and expect to
complete our £4.5 billion return of capital programme, in fiscal 23.
Our core capabilities, strategic priorities and our engaged organisation
give us confidence in our ability to navigate short-term volatility and
uncertainty while continuing to drive sustainable long-term growth and
shareholder value.”
Lavanya Chandrashekar
Chief Financial Officer
1. See definitions and reconciliation of
non-GAAP measures to GAAP
measures on pages 76-83
EUm
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
%
%
£ million
pence
pence
pence
2022
263.0
15,452
2,721
4,797
(388)
4,409
417
(17)
(422)
31
23.9
22.5
3,249
140.2
151.9
76.18
2021
238.4
12,733
2,163
3,746
(15)
3,731
334
14
(373)
(84)
24.5
22.2
2,660
113.8
117.5
72.55
Operating profit
before exceptionals3
56
Diageo Annual Report 2022
Diageo Annual Report 2022
57
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
54.8
51.2
94.2
35.7
27.1
000
3,212
2,884
1,682
1,525
6,095
2,453
2,454
871
470
315
538
1,017
711
315
538
1. Excluding corporate net sales of £54 million (2021 – £20 million)
2. Excluding net corporate costs of £238 million (2021 – £208 million)
3. Excluding exceptional operating charges of £388 million (2021 – £15 million)
and net corporate operating costs of £238 million (2021 – £208 million)
Volume
Net sales1
Operating profit2
Group financial review continued
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo – reported growth
by region1
Volume
%
3
20
8
12
17
Net
sales
%
17
26
16
19
46
Marketing
%
28
22
17
18
51
Operating
profit before
exceptional
items
%
10
60
17
84
78
Operating
profit1
%
10
40
(23)
84
78
10
21
26
28
18
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo – organic growth
by region1
Net
sales
%
14
30
16
22
43
Marketing
%
24
26
16
22
49
Operating
profit before
exceptional
items
%
7
64
16
79
70
21
25
26
Volume
%
3
20
8
13
17
10
1.
Includes Corporate. In the year ended 30 June 2022, corporate net sales were £54 million (2021 – £20 million). Net corporate operating costs were £238 million (2021 – £208 million).
Basic earnings per share (pence)
Basic eps increased 23.2% from 113.8 pence to 140.2 pence
Basic eps before exceptional items1 increased 29.3% from
117.5 pence to 151.9 pence
Basic eps increased 26.4 pence, primarily driven by organic operating profit
growth, partially offset by higher tax and exceptional items, primarily due to
non-cash impairment charges related to India and Russia.
Basic eps before exceptional items increased 34.4 pence.
(8.0)
(1.4)
(0.8)
113.8
2021
42.6
3.5
0.5
4
0.4
140.2
(0.7)
(11.4)
(2.3)
2022
Exceptional items after tax2
Exchange on operating profit
Acquisitions and disposals3
Organic operating profit
Associates and joint ventures
Finance charges4
Tax5
Share buyback
Non- controlling interests
FVR6
Hyperinflation
(operating profit)7
1. See page 76-83 for explanation of the calculation and use of non-GAAP measures
2. For further details on exceptional items see pages 156-157
3.
4. Excludes finance charges related to acquisitions, disposals, share buybacks and
Includes finance charges net of tax
includes finance charges related to hyperinflation adjustments (2022 – £(36) million;
2021 – £(6) million)
5. Excludes tax related to acquisitions, disposals and share buybacks
6. Fair value remeasurements. For further details see page 60
7. Operating profit hyperinflation adjustment movement was £10 million compared to
fiscal 21 (2022 – £10 million; fiscal 2021 – £nil)
Return on average invested capital (%)1
ROIC increased 331bps
ROIC increased 331bps, driven mainly by organic operating profit growth, partially
offset by higher tax.
29
bps
13.5%
(27)
bps
444
bps
19
bps
16.8%
(132)
bps
(2)
bps
Exchange
Acquisitions and disposals
Organic operating profit
Associates and joint ventures
Tax
Other
Operating margin (%)
Reported operating margin decreased 77bps
Organic operating margin increased 121bps
Reported operating margin decreased 77bps, with organic margin expansion,
more than offset by exceptional operating items of £388 million, primarily due to
non-cash impairments related to India and Russia.
Organic operating margin increased 121bps, reflecting a strong recovery in gross
margin and leverage on operating costs, while increasing marketing investment.
Strong operating margin expansion in Latin America and Caribbean, Europe and
Africa was partially offset by a decline in North America.
Organic gross margin increased 112bps, primarily driven by positive mix from
premiumisation and the recovery of the on-trade channel. It also benefitted from
improved fixed cost absorption from volume growth. Price increases and supply
productivity savings more than offset the absolute impact of cost inflation, and
mostly offset the adverse impact on gross margin.
29.3%
21
bps
34
bps
112
bps
55
bps
28.5%
(239)
bps
(14)
bps
(46)
bps
Organic
movement 121 bps
Exceptional operating items1
Exchange
Acquisitions and disposals
Other2
Gross margin
Marketing
Other operating items
2021
2022
1. For further details on exceptional operating items see pages 156-157
2. Fair value remeasurements and hyperinflation adjustment. For further details
on fair value remeasurements see page 60. See page 76-83 for details of
hyperinflation adjustment.
Operating profit (£ million)
Reported operating profit grew 18.2%
Organic operating profit grew 26.3%
Reported operating profit increased 18.2%, primarily driven by growth in organic
operating profit. This was partially offset by the negative impact of exceptional
operating items, which were mainly due to non-cash impairments related to
India and Russia.
Organic operating profit grew 26.3%, ahead of organic net sales growth, driven
by growth across all regions.
(373)
(32)
(16)
995
4,409
94
10
Exceptional operating items1
Exchange
Acquisitions and disposals
FVR2
Hyperinflation3
Organic movement
2022
3,731
2021
2021
2022
1. ROIC calculation excludes exceptional operating items from operating profit. For further
details on ROIC see page 82
1. For further details on exceptional operating items see pages 156-157
2. Fair value remeasurements. For further details see page 60
3. See page 76-83 for details of hyperinflation adjustment
58
Diageo Annual Report 2022
Group financial review continued
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo – reported growth
by region1
Volume
sales
Marketing
items
profit1
Volume
sales
Marketing
items
Net
%
17
26
16
19
46
%
3
20
8
12
17
Operating
profit before
exceptional
Operating
%
28
22
17
18
51
26
%
10
40
(23)
84
78
%
10
60
17
84
78
28
10
21
18
by region1
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
Diageo – organic growth
Net
%
14
30
16
22
43
21
%
3
20
8
13
17
10
Operating
profit before
exceptional
%
7
64
16
79
70
26
%
24
26
16
22
49
25
1.
Includes Corporate. In the year ended 30 June 2022, corporate net sales were £54 million (2021 – £20 million). Net corporate operating costs were £238 million (2021 – £208 million).
Basic earnings per share (pence)
Operating margin (%)
Basic eps increased 23.2% from 113.8 pence to 140.2 pence
Reported operating margin decreased 77bps
Basic eps before exceptional items1 increased 29.3% from
Organic operating margin increased 121bps
117.5 pence to 151.9 pence
Basic eps increased 26.4 pence, primarily driven by organic operating profit
growth, partially offset by higher tax and exceptional items, primarily due to
non-cash impairment charges related to India and Russia.
Basic eps before exceptional items increased 34.4 pence.
Reported operating margin decreased 77bps, with organic margin expansion,
more than offset by exceptional operating items of £388 million, primarily due to
non-cash impairments related to India and Russia.
Organic operating margin increased 121bps, reflecting a strong recovery in gross
margin and leverage on operating costs, while increasing marketing investment.
Strong operating margin expansion in Latin America and Caribbean, Europe and
Africa was partially offset by a decline in North America.
Organic gross margin increased 112bps, primarily driven by positive mix from
premiumisation and the recovery of the on-trade channel. It also benefitted from
improved fixed cost absorption from volume growth. Price increases and supply
productivity savings more than offset the absolute impact of cost inflation, and
mostly offset the adverse impact on gross margin.
42.6
3.5
0.5
4
0.4
140.2
(0.7)
(11.4)
(2.3)
Exceptional items after tax2
Exchange on operating profit
29.3%
55
bps
28.5%
Exchange
Exceptional operating items1
21
bps
34
bps
112
bps
(239)
bps
(14)
bps
(46)
bps
Organic
movement 121 bps
Acquisitions and disposals
Other2
Gross margin
Marketing
Other operating items
(8.0)
(1.4)
(0.8)
113.8
2021
Acquisitions and disposals3
Organic operating profit
Associates and joint ventures
Finance charges4
Tax5
FVR6
Share buyback
Non- controlling interests
Hyperinflation
(operating profit)7
2022
1. See page 76-83 for explanation of the calculation and use of non-GAAP measures
1. For further details on exceptional operating items see pages 156-157
2. For further details on exceptional items see pages 156-157
3.
Includes finance charges net of tax
2. Fair value remeasurements and hyperinflation adjustment. For further details
on fair value remeasurements see page 60. See page 76-83 for details of
4. Excludes finance charges related to acquisitions, disposals, share buybacks and
hyperinflation adjustment.
includes finance charges related to hyperinflation adjustments (2022 – £(36) million;
2021
2022
2021 – £(6) million)
5. Excludes tax related to acquisitions, disposals and share buybacks
6. Fair value remeasurements. For further details see page 60
7. Operating profit hyperinflation adjustment movement was £10 million compared to
fiscal 21 (2022 – £10 million; fiscal 2021 – £nil)
Return on average invested capital (%)1
ROIC increased 331bps
offset by higher tax.
ROIC increased 331bps, driven mainly by organic operating profit growth, partially
Operating profit (£ million)
Reported operating profit grew 18.2%
Organic operating profit grew 26.3%
Reported operating profit increased 18.2%, primarily driven by growth in organic
operating profit. This was partially offset by the negative impact of exceptional
operating items, which were mainly due to non-cash impairments related to
India and Russia.
by growth across all regions.
Organic operating profit grew 26.3%, ahead of organic net sales growth, driven
444
bps
19
bps
29
bps
13.5%
(27)
bps
Exchange
Tax
Other
16.8%
Acquisitions and disposals
3,731
(132)
bps
(2)
bps
Organic operating profit
Associates and joint ventures
94
10
(373)
(32)
(16)
995
4,409
Exceptional operating items1
Exchange
Acquisitions and disposals
FVR2
Hyperinflation3
Organic movement
1. ROIC calculation excludes exceptional operating items from operating profit. For further
1. For further details on exceptional operating items see pages 156-157
2021
2022
2. Fair value remeasurements. For further details see page 60
3. See page 76-83 for details of hyperinflation adjustment
2021
2022
details on ROIC see page 82
58
Diageo Annual Report 2022
Net sales (£ million)
Reported net sales grew 21.4%
Organic net sales grew 21.4%
Reported net sales grew 21.4%, driven by strong organic growth. An unfavourable
foreign exchange impact was partially offset by a hyperinflation adjustment in
respect of Turkey.
Organic net sales growth of 21.4% reflects organic volume growth of 10.3% and
11.1 percentage points of positive price/mix. All regions delivered double-digit
growth, reflecting the continued recovery of the on-trade channel, resilient
consumer demand in the off-trade channel and market share gains. Growth was
underpinned by favourable industry trends of spirits taking share of total beverage
alcohol and premiumisation1.
Price/mix drove 11.1 percentage points of growth, reflecting positive mix and
mid-single digit price growth from price increases across all regions.
Positive mix was driven by strong growth of our super-premium-plus brands,
particularly scotch, tequila and Chinese white spirits. It also reflects continued
recovery of the on-trade channel in North America and Europe and the partial
recovery of Travel Retail, partially offset by negative market mix due to the
increased contribution to net sales from India.
12,733
35
189
(221)
1,405
15,452
1,311
Organic
movement
Exchange2
Acquisitions and disposals
Hyperinflation3
Volume
Price/mix
2021
2022
IWSR, 2021
1.
2. Exchange rate movements reflect the adjustment to recalculate the reported results
as if they had been generated at the prior period weighted average exchange rates
3. See page 76-83 for details of hyperinflation adjustment
S
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C
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P
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Net cash from operating activities and free cash flow
(£ million)
Generated £3,935 million net cash from operating activities1
and £2,783 million free cash flow
Net cash from operating activities was £3,935 million, an increase of £281 million
compared to fiscal 21. Free cash flow decreased by £254 million to £2,783 million.
Free cash flow decreased as strong growth in operating profit was more than offset
by the impact of lapping an exceptionally strong working capital benefit in fiscal 21,
increased capex investment, lower dividends from joint ventures and associates
and higher cash tax paid.
The working capital benefit in fiscal 21 was due to a large increase in creditors as
operating performance recovered during the year, following reduced volumes
and cost control measures in the second half of fiscal 20.
Increased capex reflects investment in production capacity, sustainability, digital
capabilities and consumer experiences, including projects delayed in fiscal 21
due to Covid-19.
The negative cash flow impact from ‘other’ items was due to lapping a delayed
dividend payment of £82 million from Moët Hennessy, which was received in fiscal
21 for the year ended December 2019.
The increase in cash tax payments primarily reflects higher tax on increased
earnings.
3,654
1,003
1,152
3,935
3,037
(510)
23
2,783
(617)
(32)
(467)
(97)
(174)
2021 Net cash
from operating
activities
2021 Capex and
movements in
loans and other
investments
2021 Free cash flow
Exchange2
Operating profit3
Working capital4
Capex
Tax
Interest
Other5
2022 Free cash flow
2022 Capex and
movements in
loans and other
investments
2022 Net cash
from operating
activities
2021
2022
1. Net cash from operating activities excludes net capex (2022 – £(1,080) million;
2021 – £(613) million) and movements in loans and other investments
2. Exchange on operating profit before exceptional items
3. Operating profit excludes exchange, depreciation and amortisation, post employment
charges of £(53) million and other non-cash items
4. Working capital movement includes maturing inventory
5. Other items include dividends received from associates and joint ventures, movements
in loans and other investments and post employment payments
Summary income statement
Sales
Excise duties
Net sales
Cost of sales
Gross profit
Marketing
Other operating items
Operating profit before exceptional items
Exceptional operating items (c)
Operating profit
Non-operating items (c)
Net finance charges
Share of after tax results of associates and joint
ventures
Profit before taxation
Taxation (e)
Profit for the year
1. For the definition of organic movement, see pages 76-83
30 June 2021
£ million
19,153
(6,420)
12,733
(5,038)
7,695
(2,163)
(1,786)
3,746
(15)
3,731
14
(373)
334
3,706
(907)
2,799
Exchange (a)
£ million
(838)
617
(221)
127
(94)
15
47
(32)
Acquisitions and
disposals (b)
£ million
38
(3)
35
(22)
13
(25)
(4)
(16)
Organic
movement1
£ million
3,567
(851)
2,716
(901)
1,815
(532)
(288)
995
Fair value
remeasurement (d)
£ million
—
—
—
(5)
(5)
1
98
94
Hyperinflation1
£ million
528
(339)
189
(134)
55
(17)
(28)
10
30 June 2022
£ million
22,448
(6,996)
15,452
(5,973)
9,479
(2,721)
(1,961)
4,797
(388)
4,409
(17)
(422)
417
4,387
(1,049)
3,338
Diageo Annual Report 2022
59
Group financial review continued
(a) Exchange
The impact of movements in exchange rates on reported figures
for net sales and operating profit was principally in respect of the
translation exchange impact of the strengthening of sterling against
the euro and the Turkish lira, partially offset by weakening of sterling
against the US dollar.
The effect of movements in exchange rates and other movements on
profit before exceptional items and taxation for the year ended
30 June 2022 is set out in the table below.
Translation impact
Transaction impact
Operating profit before exceptional items
Net finance charges – translation impact
Net finance charges – transaction impact
Net finance charges
Associates – translation impact
Profit before exceptional items and taxation
Exchange rates
Translation £1 =
Transaction £1 =
Translation £1 =
Transaction £1 =
Gains/(losses)
£ million
(37)
5
(32)
4
(3)
1
(19)
(50)
Year ended
30 June 2022
Year ended
30 June 2021
$1.33
$1.29
€1.18
€1.15
$1.35
$1.34
€1.13
€1.14
(b) Acquisitions and disposals
The acquisitions and disposals movement was primarily attributable
to the disposal of the Picon brand and Meta Abo Brewery Share
Company (Meta Abo Brewery) in the year ended 30 June 2022 and
to the impact of prior year’s acquisitions.
SEE PAGES 163-165 FOR FURTHER DETAILS.
(c) Exceptional items
Exceptional operating items in the year ended 30 June 2022 were
£388 million loss before tax (2021 – £15 million).
In the year ended 30 June 2022, an impairment charge of £336 million
was recognised in exceptional operating items in respect of the
McDowell’s No.1 brand (£240 million), Bell’s brand (£77 million) and
Smirnov related goodwill (£19 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.
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 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.
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.
In the year ended 30 June 2021, an additional provision of £15 million
was recorded as an exceptional item in respect of ongoing litigation in
Turkey, bringing the provision’s balance to £23 million, following a
settlement of £1 million during that year.
60
Diageo Annual Report 2022
On 20 November 2020, the High Court of Justice of England and
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 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.
In the year ended 30 June 2021, an inventory provision of £7 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.
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.
Non-operating items in the year ended 30 June 2022 were £17 million
loss before tax (2021 – £14 million gain).
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.
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.
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.
In the year ended 30 June 2022, ZAR 133 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 (2021 – a gain of £10 million).
Certain subsidiaries of United Spirits Limited (USL) were sold in the year
ended 30 June 2021. The sale of these subsidiaries resulted in an
exceptional gain of £3 million.
In the year ended 30 June 2021, the group reversed £1 million from
provisions in relation to the sale of a portfolio of 19 brands to Sazerac
on 20 December 2018.
SEE PAGE 76 FOR THE DEFINITION OF EXCEPTIONAL ITEMS.
(d) Fair value remeasurement
The adjustment to cost of sales reflects the elimination of fair value
changes for biological assets in respect of growing agave plants
of £5 million loss for the year ended 30 June 2022. The adjustments to
marketing and other operating expenses were the elimination of fair
value changes to contingent consideration liabilities and earn out
arrangements in respect of prior year acquisitions of £65 million gain
for the year ended 30 June 2022 and £34 million loss for the year
ended 30 June 2021.
Group financial review continued
(a) Exchange
The impact of movements in exchange rates on reported figures
for net sales and operating profit was principally in respect of the
translation exchange impact of the strengthening of sterling against
the euro and the Turkish lira, partially offset by weakening of sterling
against the US dollar.
The effect of movements in exchange rates and other movements on
profit before exceptional items and taxation for the year ended
30 June 2022 is set out in the table below.
Translation impact
Transaction impact
Operating profit before exceptional items
Net finance charges – translation impact
Net finance charges – transaction impact
Net finance charges
Associates – translation impact
Profit before exceptional items and taxation
Gains/(losses)
£ million
(37)
(32)
5
4
1
(3)
(19)
(50)
Exchange rates
Translation £1 =
Transaction £1 =
Translation £1 =
Transaction £1 =
Year ended
30 June 2022
Year ended
30 June 2021
30 June 2020.
$1.33
$1.29
€1.18
€1.15
$1.35
$1.34
€1.13
€1.14
(b) Acquisitions and disposals
The acquisitions and disposals movement was primarily attributable
to the disposal of the Picon brand and Meta Abo Brewery Share
Company (Meta Abo Brewery) in the year ended 30 June 2022 and
to the impact of prior year’s acquisitions.
SEE PAGES 163-165 FOR FURTHER DETAILS.
(c) Exceptional items
Exceptional operating items in the year ended 30 June 2022 were
£388 million loss before tax (2021 – £15 million).
Smirnov related goodwill (£19 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.
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 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.
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.
In the year ended 30 June 2021, an additional provision of £15 million
was recorded as an exceptional item in respect of ongoing litigation in
Turkey, bringing the provision’s balance to £23 million, following a
settlement of £1 million during that year.
60
Diageo Annual Report 2022
On 20 November 2020, the High Court of Justice of England and
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 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.
In the year ended 30 June 2021, an inventory provision of £7 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.
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
Non-operating items in the year ended 30 June 2022 were £17 million
loss before tax (2021 – £14 million gain).
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.
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.
In the year ended 30 June 2022, ZAR 133 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 (2021 – a gain of £10 million).
Certain subsidiaries of United Spirits Limited (USL) were sold in the year
ended 30 June 2021. The sale of these subsidiaries resulted in an
exceptional gain of £3 million.
In the year ended 30 June 2021, the group reversed £1 million from
provisions in relation to the sale of a portfolio of 19 brands to Sazerac
on 20 December 2018.
SEE PAGE 76 FOR THE DEFINITION OF EXCEPTIONAL ITEMS.
(d) Fair value remeasurement
The adjustment to cost of sales reflects the elimination of fair value
changes for biological assets in respect of growing agave plants
of £5 million loss for the year ended 30 June 2022. The adjustments to
marketing and other operating expenses were the elimination of fair
value changes to contingent consideration liabilities and earn out
arrangements in respect of prior year acquisitions of £65 million gain
for the year ended 30 June 2022 and £34 million loss for the year
ended 30 June 2021.
In the year ended 30 June 2022, an impairment charge of £336 million
was recognised in exceptional operating items in respect of the
McDowell’s No.1 brand (£240 million), Bell’s brand (£77 million) and
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.
(e) Taxation
The reported tax rate for the year ended 30 June 2022 was 23.9%
compared with 24.5% for the year ended 30 June 2021.
The reported tax charge for the year ended 30 June 2022 included an
exceptional tax credit of £31 million, mainly comprising exceptional tax
credits on the impairment of the McDowell’s and Bell’s brands of
£35 million and £20 million, respectively, offset by a £23 million
exceptional tax charge in respect of the gain on the sale of the Picon
brand and a further £3 million tax charge in respect of winding down
operations in Russia.
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 post employment assets.
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.
The tax rate before exceptional items for the year ended 30 June 2022
was 22.5% compared with 22.2% for the year ended 30 June 2021.
We expect the tax rate before exceptional items for the year ending
30 June 2023 to be in the range of 22%–24%.
(f) Dividend
The group aims to increase the dividend each year. The decision in
respect of the dividend is made with reference to the dividend cover,
as well as current performance trends, including sales and profit after
tax together with cash generation. Diageo targets dividend cover
(the ratio of basic earnings per share before exceptional items to
dividend per share) within the range of 1.8–2.2 times. For the year
ended 30 June 2022, dividend cover is 2.0 times. The recommended
final dividend for the year ended 30 June 2022, to be put to the
shareholders for approval at the Annual General Meeting is
46.82 pence, an increase of 5% on the prior year final dividend.
This brings the full year dividend to 76.18 pence per share, an increase
of 5% on the prior year. The group will keep future returns of capital,
including dividends, under review through the year ending 30 June
2023, to ensure Diageo’s capital is allocated in the best way to
maximise value for the business and stakeholders.
Subject to approval by shareholders, the final dividend will be paid to
holders of ordinary shares and US ADRs on register as of 26 August
2022. The ex-dividend date both for holders of ordinary shares and for
US ADR holders is 25 August 2022. The final dividend, once approved
by shareholders, will be paid to holders of ordinary shares on
20 October 2022 and payment to US ADR holders will be made on
25 October 2022. A dividend reinvestment plan is available to holders
of ordinary shares in respect of the final dividend and the plan notice
date is 23 September 2022.
(g) Return of capital
Diageo’s current return of capital programme, initially approved by the
Board on 25 July 2019, seeks to return up to £4.5 billion to shareholders
and is expected to be completed by 30 June 2023. Under the first two
phases of the programme, which ended on 31 January 2020 and
11 February 2022 respectively, the company returned capital to
shareholders via share buyback, at a cost, excluding transaction costs,
of £2.25 billion. On 21 February 2022, the company announced the
third phase of the programme with a value of up to £1.7 billion returned
to shareholders, via share buybacks, 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 30 June 2023.
In the year ended 30 June 2022, the company purchased 61 million
ordinary shares at a cost of £2,284 million (including transactions
costs of £16 million). All shares purchased under the share buyback
programme were cancelled. A financial liability of £117 million was
established at 30 June 2022, representing the 3.3 million shares that
were expected to be purchased by 28 July 2022.
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Movements in net borrowings and equity
Movements in net borrowings
Net borrowings at the beginning of the year
Free cash flow (a)
Acquisitions (b)
Sale of businesses and brands
Share buyback programme (c)
Net sale of own shares for share schemes (d)
Purchase of treasury shares in respect of
subsidiaries
Dividend paid to non-controlling interests
Net movements in bonds (e)
Purchase of shares of non-controlling
interests (f)
Net movements in other borrowings (g)
Equity dividend paid
Net decrease in cash and cash equivalents
Net (increase)/decrease in bonds and other
borrowings
Exchange differences (h)
Other non-cash items (i)
Net borrowings at the end of the year
2022
£ million
(12,109)
2,783
(271)
82
(2,284)
18
(15)
(81)
742
—
79
(1,718)
(665)
(825)
(334)
(204)
(14,137)
2021
£ million
(13,246)
3,037
(488)
14
(109)
49
—
(77)
(216)
(42)
(753)
(1,646)
(231)
967
598
(197)
(12,109)
a. See page 59 for the analysis of free cash flow.
b. Diageo completed a number of acquisitions in the year ended
30 June 2022, including: (i) on 27 January 2022, the acquisition of
Casa UM, to expand its Reserve portfolio with the premium artisanal
mezcal brand, Mezcal Unión, (ii) on 31 March 2022, the acquisition
of 21Seeds, to support Diageo’s participation in the super premium
flavoured tequila segment and (iii) 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 final earn-out payment in respect of the Casamigos
acquisition amounting to $113 million (£83 million) was made
on 17 September 2021.
Contingent consideration paid in respect of other prior year
acquisitions is primarily attributable to Aviation Gin and
Davos Brands.
In the year ended 30 June 2021, Diageo completed the acquisition
of Aviation Gin and Davos Brands for a total consideration of
$337 million (£263 million) in cash and contingent consideration
of up to $275 million (£214 million) over a 10-year period linked to
performance targets. Diageo also completed a number of additional
acquisitions for a total consideration of £95 million in cash and
contingent consideration of £86 million, in each case linked to
performance targets.
Diageo Annual Report 2022
61
Group financial review continued
c. See page 61 for details of Diageo’s return of capital programmes.
Movements in equity
d. Net sale of own shares comprised receipts from employees on the
exercise of share options of £32 million (2021 – £57 million) less
purchase of own shares for the future settlement of obligations under
the employee share option schemes of £14 million (2021 – £8 million).
e. In the year ended 30 June 2022, the group issued bonds of
€1,650 million (£1,371 million – net of discount and fee) and
£892 million (including £8 million discount and fee) and repaid
bonds of €900 million (£769 million) and $1000 million (£752
million). In the year ended 30 June 2021, the group issued bonds
of €700 million (£636 million – net of discount and fee) and
£395 million (including £5 million discount and fee) and repaid
bonds of $696 million (£551 million) and €775 million (£696 million).
f. In the year ended 30 June 2021, East African Breweries Limited, a
subsidiary of Diageo, completed the purchase of 30% of the share
capital of Serengeti Breweries Limited for $55 million (£42 million).
g. In the year ended 30 June 2022, the net movements in other
borrowings principally arose from cash movement of foreign
currency swaps and forwards partially offset by the repayment of
lease liabilities.
In the year ended 30 June 2021, the net movements in other
borrowings principally arose from cash movement of foreign
currency swaps and forwards.
h. In the year ended 30 June 2022, exchange losses arising on net
borrowings of £334 million were primarily driven by adverse
exchange movements on US dollar denominated borrowings,
partially offset by favourable movement on euro denominated
borrowings, cash and cash equivalents, foreign currency swaps
and forwards.
In the year ended 30 June 2021, exchange gains arising on net
borrowings of £598 million were primarily driven by favourable
exchange movements on US dollar and euro denominated
borrowings, partially offset by an adverse movement on cash
and cash equivalents, foreign currency swaps and forwards.
i. In the year ended 30 June 2022, other non-cash items were
principally in respect of additional leases entered into during
the year.
In the year ended 30 June 2021, other non-cash items are principally
in respect of fair value losses of cross currency interest rate swaps
and interest rate swaps, partially offset by the fair value gains
of borrowings.
Equity at the beginning of the year
Adjustment to 2021 closing equity in respect
of hyperinflation in Turkey (a)
Adjusted equity at the beginning of the year
Profit for the year
Exchange adjustments (b)
Remeasurement of post employment plans
net of taxation
Purchase of shares of non-controlling
interests (c)
Hyperinflation adjustments net of taxation (a)
Associates’ transactions with non-controlling
interest
Dividend to non-controlling interests
Equity dividend paid
Share buyback programme (d)
Other reserve movements
Equity at the end of the year
2022
£ million
8,431
251
8,682
3,338
799
497
—
291
—
(72)
(1,718)
(2,310)
7
9,514
2021
£ million
8,440
—
8,440
2,799
(836)
(27)
(42)
(12)
(91)
(72)
(1,646)
(200)
118
8,431
a. See pages 76-83 for details of hyperinflation adjustment.
b. Exchange movements in the year ended 30 June 2022 primarily
arose from exchange gains driven by the US dollar and the Indian
rupee, partially offset by the Turkish lira. Exchange movements in the
year ended 30 June 2021 primarily arose from exchange losses
driven by the Indian rupee, the US dollar and the Turkish lira.
c. In the year ended 30 June 2021, East African Breweries Limited
completed the purchase of 30% of the share capital of Serengeti
Breweries Limited for $55 million (£42 million).
d. See page 61 for details of Diageo’s return of capital programmes.
Post employment benefit plans
The net surplus of the group’s post employment benefit plans increased
by £707 million from £444 million at 30 June 2021 to £1,151 million at
30 June 2022. The increase in net surplus was predominantly
attributable to the favourable change in the discount rate assumptions
in the United Kingdom and Ireland due to the increase in returns from
‘AA’ rated corporate bonds used to calculate the discount rates on the
liabilities of the post employment plans (UK from 1.9% to 3.8%; Ireland
from 1.0% to 3.2%) that was partially offset by the unfavourable actual
change in the market value of assets held by the post employment
benefit plans in the United Kingdom and Ireland, and the change in
inflation rate assumptions in the United Kingdom and Ireland (UK from
3.0% to 3.1%; Ireland from 1.6% to 2.4%).
The operating profit charge before exceptional items decreased by
£48 million from £87 million for the year ended 30 June 2021 to
£39 million for the year ended 30 June 2022. The operating profit
for the year ended 30 June 2022 includes settlement gains of
£27 million in respect of the Enhanced Transfer Values exercise
carried out in the Guinness Ireland Group Pension Scheme (GIGPS)
and the Grand Metropolitan Pension Fund, and past service gain of
£28 million as a result of the changes in the benefits of the GIGPS.
Total cash contributions by the group to all post employment benefit
plans in the year ending 30 June 2023 are estimated to be
approximately £70 million.
62
Diageo Annual Report 2022
Group financial review continued
c. See page 61 for details of Diageo’s return of capital programmes.
Movements in equity
d. Net sale of own shares comprised receipts from employees on the
exercise of share options of £32 million (2021 – £57 million) less
purchase of own shares for the future settlement of obligations under
the employee share option schemes of £14 million (2021 – £8 million).
e. In the year ended 30 June 2022, the group issued bonds of
€1,650 million (£1,371 million – net of discount and fee) and
£892 million (including £8 million discount and fee) and repaid
bonds of €900 million (£769 million) and $1000 million (£752
million). In the year ended 30 June 2021, the group issued bonds
of €700 million (£636 million – net of discount and fee) and
£395 million (including £5 million discount and fee) and repaid
bonds of $696 million (£551 million) and €775 million (£696 million).
f. In the year ended 30 June 2021, East African Breweries Limited, a
subsidiary of Diageo, completed the purchase of 30% of the share
capital of Serengeti Breweries Limited for $55 million (£42 million).
g. In the year ended 30 June 2022, the net movements in other
borrowings principally arose from cash movement of foreign
currency swaps and forwards partially offset by the repayment of
lease liabilities.
In the year ended 30 June 2021, the net movements in other
borrowings principally arose from cash movement of foreign
currency swaps and forwards.
h. In the year ended 30 June 2022, exchange losses arising on net
borrowings of £334 million were primarily driven by adverse
exchange movements on US dollar denominated borrowings,
partially offset by favourable movement on euro denominated
borrowings, cash and cash equivalents, foreign currency swaps
and forwards.
In the year ended 30 June 2021, exchange gains arising on net
borrowings of £598 million were primarily driven by favourable
exchange movements on US dollar and euro denominated
borrowings, partially offset by an adverse movement on cash
and cash equivalents, foreign currency swaps and forwards.
i. In the year ended 30 June 2022, other non-cash items were
principally in respect of additional leases entered into during
the year.
In the year ended 30 June 2021, other non-cash items are principally
in respect of fair value losses of cross currency interest rate swaps
and interest rate swaps, partially offset by the fair value gains
of borrowings.
Equity at the beginning of the year
Adjustment to 2021 closing equity in respect
of hyperinflation in Turkey (a)
Adjusted equity at the beginning of the year
Profit for the year
Exchange adjustments (b)
Remeasurement of post employment plans
net of taxation
interests (c)
Purchase of shares of non-controlling
Hyperinflation adjustments net of taxation (a)
Associates’ transactions with non-controlling
interest
Dividend to non-controlling interests
Equity dividend paid
Share buyback programme (d)
Other reserve movements
Equity at the end of the year
2022
£ million
8,431
251
8,682
3,338
799
497
—
291
—
(72)
(1,718)
(2,310)
7
9,514
2021
£ million
8,440
—
8,440
2,799
(836)
(27)
(42)
(12)
(91)
(72)
(1,646)
(200)
118
8,431
a. See pages 76-83 for details of hyperinflation adjustment.
b. Exchange movements in the year ended 30 June 2022 primarily
arose from exchange gains driven by the US dollar and the Indian
rupee, partially offset by the Turkish lira. Exchange movements in the
year ended 30 June 2021 primarily arose from exchange losses
driven by the Indian rupee, the US dollar and the Turkish lira.
c. In the year ended 30 June 2021, East African Breweries Limited
completed the purchase of 30% of the share capital of Serengeti
Breweries Limited for $55 million (£42 million).
d. See page 61 for details of Diageo’s return of capital programmes.
Post employment benefit plans
The net surplus of the group’s post employment benefit plans increased
by £707 million from £444 million at 30 June 2021 to £1,151 million at
30 June 2022. The increase in net surplus was predominantly
attributable to the favourable change in the discount rate assumptions
in the United Kingdom and Ireland due to the increase in returns from
‘AA’ rated corporate bonds used to calculate the discount rates on the
liabilities of the post employment plans (UK from 1.9% to 3.8%; Ireland
from 1.0% to 3.2%) that was partially offset by the unfavourable actual
change in the market value of assets held by the post employment
benefit plans in the United Kingdom and Ireland, and the change in
inflation rate assumptions in the United Kingdom and Ireland (UK from
3.0% to 3.1%; Ireland from 1.6% to 2.4%).
The operating profit charge before exceptional items decreased by
£48 million from £87 million for the year ended 30 June 2021 to
£39 million for the year ended 30 June 2022. The operating profit
for the year ended 30 June 2022 includes settlement gains of
£27 million in respect of the Enhanced Transfer Values exercise
carried out in the Guinness Ireland Group Pension Scheme (GIGPS)
and the Grand Metropolitan Pension Fund, and past service gain of
£28 million as a result of the changes in the benefits of the GIGPS.
Total cash contributions by the group to all post employment benefit
plans in the year ending 30 June 2023 are estimated to be
approximately £70 million.
Business review
North America
North America remains the second largest beverage alcohol market worldwide1 and represents
over one-third of our net sales.
Our consumers are at the heart of our business, and our strategy is focussed on accelerating
sustainable growth through smart investments in our portfolio of brands, data-led insights,
and excellence in our route to market. We have a well-positioned portfolio of brands that leans
into premiumisation, and recruit and re-recruit consumers into the portfolio through sustainable
innovation and meaningful consumer engagement, including on-promise re-opening in the past
year. We are proud of our progress in our ‘Society 2030: Spirit of Progress’ goals, dialing up our
purposefulness to make a positive impact in the communities where we live and work.
S
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P
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Key financials
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items2
Operating profit
Markets and categories
North America
US Spirits
DBC USA4,5
Canada
Spirits
Beer
Ready to drink4
Global giants, local stars and reserve6
Crown Royal
Don Julio
Casamigos
Johnnie Walker
Smirnoff
Captain Morgan
Ketel One8
Baileys
Guinness
Bulleit
Cîroc vodka
Acquisitions
and
disposals
£ million
34
24
(19)
Organic
movement
£ million
754
222
148
Exchange
£ million
98
19
49
Other3
£ million
—
(1)
39
2021
£ million
5,209
936
2,237
—
2,237
2022
£ million
6,095
1,200
2,454
(1)
2,453
Reported
movement
%
17
28
10
10
Organic volume
movement
%
3
Reported volume
movement
%
3
Organic net sales
movement
%
14
Reported net
sales movement
%
17
Reported net sales by market (%)
4
(2)
(2)
3
(4)
15
4
—
(2)
3
(4)
40
17
2
3
16
1
21
19
6
6
18
2
49
Organic volume
movement7
%
2
30
81
9
(4)
(3)
7
(10)
5
10
(4)
Organic net sales
movement
%
6
36
88
26
(3)
(5)
12
(8)
7
14
—
Reported net
sales movement
%
8
38
91
28
(2)
(3)
13
(6)
9
16
1
US Spirits
DBC USA
Canada
Other (principally
Travel Retail)
Reported net sales by category (%)
Spirits
Beer
Ready to drink
Other
IWSR, calendar year 2021
1.
2. For further details on exceptional operating items see pages 156-157
3. Fair value remeasurements. For further details see page 60.
4. Reported volume movement impacted by acquisitions. For further details see page 80.
5. Certain spirits-based ready to drink products in certain states are distributed through DBC USA and those net sales are captured within DBC USA
6. Spirits brands excluding ready to drink and non-alcoholic variants
7. Organic equals reported volume movement
8. Ketel One includes Ketel One vodka and Ketel One Botanical
62
Diageo Annual Report 2022
Diageo Annual Report 2022
63
Business review continued
Our markets
Headquartered in New York, Diageo North America is
comprised of US Spirits, Diageo Beer Company USA (DBC USA) and
Diageo Canada, headquartered in Toronto.
Supply operations
With 11 domestic production facilities across the United States, Canada
and the US Virgin Islands, Diageo North America’s supply function is
one of the largest producers of beverage alcohol on the continent. We
have made major investments in innovation and sustainability, driving
efficiency and best-in-class operations. To support the growth of our
business portfolio, we started up two new production sites, including a
ready to drink (RTD) facility in Plainfield and a Bulleit Bourbon Distillery
in Lebanon, Kentucky. The Lebanon site is the first distillery in North
America powered by 100% renewable energy. We recently announced
plans for a carbon-neutral distillery in Ontario, Canada, to support the
growth ambitions for our Crown Royal Canadian whisky brand.
Route to consumer
The route to consumer in the United States is through the three-tier
system across our spirits and beer/RTD portfolio. We have consolidated
our US Spirits business into single distributors or brokers in 42 states
and the District of Columbia, representing more than 80% of our spirits
volume. US Spirits is responsible for the sale of our portfolio of spirits
and spirits-based RTD products and manages sales through two
divisions focussed on Open (distribution through private distributors)
and Control (distribution through governmental entities) States. DBC
USA sells and markets brands, including Guinness and Smirnoff Ice to
over 400 beer distributors across the US. Diageo Canada distributes
our portfolio of spirits, RTD and beer brands across all Canadian
provinces, which operate within a highly regulated federal and
provincial system. Diageo Canada manages all sales operations
with the provincial liquor control boards and national chain account
customers directly, utilising brokers to support execution at the point of
sale. Our strategy in North America is to be consumer-first, occasion-
oriented, and focussed on developing competitive differentiation in
both our brand propositions and our route to consumer. This includes
building key capabilities around commercial execution, Revenue
Growth Management, e-commerce and robust performance
management, all of which is underpinned by data and analytics.
‘Society 2030: Spirit of Progress’
Promoting positive drinking remains a priority. Along with Black, Latino
and Native American organisations, we established the Multicultural
Consortium for Responsible Drinking – to increase awareness of the
risks of harmful use of alcohol and promote moderation in diverse
communities across the United States. We partnered with road safety
organisations, distributors and corporations in the country to stigmatise
drink driving by educating nearly 39,000 people through our
interactive learning experience ‘Wrong Side of the Road’. We also
partnered with the Traffic Injury Research Foundation to create the
Impaired Driving Coalition of Canada to tackle similar challenges.
Several brands led responsible drinking campaigns reaching over
150 million consumers, including activations from Crown Royal and
Captain Morgan through our Major League Soccer (MLS) and
National Football League (NFL) partnerships.
64
Diageo Annual Report 2022
Business review continued
Our markets
Route to consumer
Headquartered in New York, Diageo North America is
The route to consumer in the United States is through the three-tier
comprised of US Spirits, Diageo Beer Company USA (DBC USA) and
system across our spirits and beer/RTD portfolio. We have consolidated
Diageo Canada, headquartered in Toronto.
Supply operations
our US Spirits business into single distributors or brokers in 42 states
and the District of Columbia, representing more than 80% of our spirits
volume. US Spirits is responsible for the sale of our portfolio of spirits
With 11 domestic production facilities across the United States, Canada
and spirits-based RTD products and manages sales through two
and the US Virgin Islands, Diageo North America’s supply function is
one of the largest producers of beverage alcohol on the continent. We
have made major investments in innovation and sustainability, driving
efficiency and best-in-class operations. To support the growth of our
business portfolio, we started up two new production sites, including a
ready to drink (RTD) facility in Plainfield and a Bulleit Bourbon Distillery
in Lebanon, Kentucky. The Lebanon site is the first distillery in North
divisions focussed on Open (distribution through private distributors)
and Control (distribution through governmental entities) States. DBC
USA sells and markets brands, including Guinness and Smirnoff Ice to
over 400 beer distributors across the US. Diageo Canada distributes
our portfolio of spirits, RTD and beer brands across all Canadian
provinces, which operate within a highly regulated federal and
provincial system. Diageo Canada manages all sales operations
America powered by 100% renewable energy. We recently announced
with the provincial liquor control boards and national chain account
plans for a carbon-neutral distillery in Ontario, Canada, to support the
customers directly, utilising brokers to support execution at the point of
growth ambitions for our Crown Royal Canadian whisky brand.
sale. Our strategy in North America is to be consumer-first, occasion-
oriented, and focussed on developing competitive differentiation in
both our brand propositions and our route to consumer. This includes
building key capabilities around commercial execution, Revenue
Growth Management, e-commerce and robust performance
management, all of which is underpinned by data and analytics.
‘Society 2030: Spirit of Progress’
Promoting positive drinking remains a priority. Along with Black, Latino
and Native American organisations, we established the Multicultural
Consortium for Responsible Drinking – to increase awareness of the
risks of harmful use of alcohol and promote moderation in diverse
communities across the United States. We partnered with road safety
organisations, distributors and corporations in the country to stigmatise
drink driving by educating nearly 39,000 people through our
interactive learning experience ‘Wrong Side of the Road’. We also
partnered with the Traffic Injury Research Foundation to create the
Impaired Driving Coalition of Canada to tackle similar challenges.
Several brands led responsible drinking campaigns reaching over
150 million consumers, including activations from Crown Royal and
Captain Morgan through our Major League Soccer (MLS) and
National Football League (NFL) partnerships.
We continue to promote diversity and equal representation through
our work with Pronghorn, an initiative to cultivate the next generation
of diverse founders, leaders and entrepreneurs within the industry.
Our Learning Skills for Life (L4L) programme provided employability
skills and hospitality training to 931 people through our partnerships,
including Historically Black Colleges and Universities. We also donated
$2.5 million to the Seattle ‘Raising the Bar’ recovery fund – to support
Asian-American and Pacific Islanders hospitality communities. These
groups were particularly affected by the pandemic. We’ve surpassed
our goal to double our spend with diverse-owned media companies,
instead spending six times more than the previous year, and we
invested 10% of media spend in programmes reaching multicultural
consumers through brand activations.
As well as opening our first carbon-neutral distillery in Lebanon,
Kentucky, and announcing plans to build our first carbon-neutral
distillery in Ontario, Canada, this year we announced plans to
transition our Valleyfield manufacturing site in Quebec to be carbon
neutral by 2025. We’ve also made progress reusing treated
wastewater in cooling processes at our US Virgin Islands operations,
and with several initiatives at Plainfield, Illinois, to reduce water usage.
Regional performance
• Reported net sales grew 17%, primarily reflecting strong organic
growth. There were favourable impacts from foreign exchange,
mainly due to the strengthening of the US dollar, and from
brand acquisitions.
• Organic net sales increased 14%, building on strong growth in
fiscal 21, largely driven by US Spirits.
• US Spirits net sales grew 17%, reflecting the recovery of the on-trade
channel and resilient consumer demand in the off-trade channel,
market share gains and spirits taking share of total beverage
alcohol, and replenishment of stock levels by distributors. We drove
particularly strong growth in our super-premium plus portfolio and
increased prices.
• US Spirits shipments were ahead of depletions, with a benefit of
approximately three percentage points from the replenishment of
stock levels by distributors, recovering from lower levels during
Covid-19. It also reflects distributors increasing inventories of certain
imported products due to longer product transit times in fiscal 22.
• US Spirits growth was primarily driven by tequila, up 57%, as well
as double-digit growth in scotch and US whiskey and growth in
Canadian whisky. This more than offset declines in Baileys and rum.
• Diageo Beer Company net sales increased 2%, reflecting increased
sales of Guinness driven by the on-trade recovery and growth in
ready to drink1, partially offset by a decline in flavoured malt
beverages.
• Organic operating margin decreased by 295bps, as we continued to
increase marketing investment, up 24%, ahead of net sales growth,
to support growth momentum across key brands. Price increases
and productivity savings partially offset cost inflation.
Market highlights
US Spirits
• Tequila net sales increased 57%, with Casamigos growing 89%
and Don Julio growing 36%, and both brands gained share of the
spirits market and the tequila category. This primarily reflects strong
volume growth, and there was also a benefit from price increases
and innovation.
• Crown Royal net sales increased 7%, with double-digit growth in the
core variant. However, supply constraints of aged liquid led to slower
growth in certain variants and a decline in Crown Royal’s share of
the spirits market and the Canadian whisky category.
• Scotch grew 19% and gained share of the spirits market and the
scotch category. Johnnie Walker net sales grew 23%, with double-
digit growth in Johnnie Walker Blue Label and Johnnie Walker Black
Label. Buchanan’s net sales increased 14% and it gained share of
the scotch category. Scotch malts grew 8%.
• Vodka net sales grew 1%. Ketel One net sales increased 11%, driven
by double-digit growth in the core variant, and slower growth of
Ketel One Botanical. Cîroc net sales declined 2%, lapping
double-digit growth in fiscal 21, with growth from recent innovations
more than offset by declines of other variants. Smirnoff net sales
decreased 4%, due to declines in certain flavour variants, partially
offset by growth from recent innovations; net sales of the core
variant were flat.
• Captain Morgan net sales declined 6%, as the rum category
continued to lose spirits market share, however, Captain Morgan
gained share of the category.
• US whiskey sales grew 11%, primarily driven by Bulleit, up 14%.
Bulleit lost share of the US whiskey category due to glass supply
constraints, which have now been resolved.
• Baileys net sales declined 8%, following strong growth in fiscal 21.
• Spirits-based ready to drink1 net sales grew 18%, primarily driven by
strong performance of Crown Royal cocktails and the launch of
Cîroc cocktails, partially offset by lower sales of Ketel One
Botanical Spritz.
1. Certain spirits-based ready to drink products in certain states are distributed through
DBC USA and those net sales are captured within DBC USA
64
Diageo Annual Report 2022
Diageo Annual Report 2022
65
Business review continued
Europe
Across our Europe business, we are building further momentum behind our six-markets model,
bringing marketing programmes closer to our consumers and customers, and optimising our
routes to market to accelerate our growth strategy through international premium spirits and beer.
Key financials
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items3
Operating profit
Markets and categories
Europe
Great Britain
Northern Europe
Southern Europe
Ireland
Eastern Europe
Turkey
Spirits
Beer
Ready to drink
Global giants and local stars4
Guinness
Johnnie Walker
Baileys
Smirnoff
Captain Morgan
Tanqueray
Yenì Raki
JεB
Acquisitions
and
disposals
£ million
3
—
1
Organic
movement
£ million
766
122
418
Exchange
£ million
(304)
(35)
(110)
Other1
£ million
—
—
63
Hyperinflation2
£ million
189
17
10
2021
£ million
2,558
473
635
(15)
620
2022
£ million
3,212
577
1,017
(146)
871
Reported
movement
%
26
22
60
40
Organic volume
movement
%
20
Reported volume
movement
%
20
Organic net sales
movement
%
30
Reported net
sales movement
%
26
Reported net sales by market (%)
15
16
30
35
7
18
18
36
23
15
16
27
35
8
18
18
36
23
20
15
33
71
18
49
24
63
23
20
10
26
65
18
25
19
60
22
Organic volume
movement5
%
42
22
20
35
11
36
9
19
Organic net sales
movement
%
65
35
19
38
12
37
15
26
Reported net
sales movement
%
62
31
16
35
9
33
14
17
Great Britain
Northern Europe
Southern Europe
Ireland
Eastern Europe
Turkey
Other (principally Travel Retail)
Reported net sales by category (%)
Spirits
Beer
Ready to drink
Other
1. Fair value remeasurements. For further details see page 60
2. See page 76-83 for details of hyperinflation adjustment
3. Exceptional items are in respect of Diageo’s decision, announced on 28 June 2022, to wind down its operations in Russia over the following six months. For further details on exceptional
operating items see pages 156-157.
4. Spirits brands excluding ready to drink and non-alcoholic variants
5. Organic equals reported volume movement, except for Smirnoff, which had reported volume movement of 36% due to a reclassification
66
Diageo Annual Report 2022
Across our Europe business, we are building further momentum behind our six-markets model,
bringing marketing programmes closer to our consumers and customers, and optimising our
routes to market to accelerate our growth strategy through international premium spirits and beer.
Business review continued
Europe
Key financials
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items3
Operating profit
Markets and categories
Europe
Great Britain
Northern Europe
Southern Europe
Ireland
Turkey
Eastern Europe
Spirits
Beer
Ready to drink
Guinness
Johnnie Walker
Baileys
Smirnoff
Captain Morgan
Tanqueray
Yenì Raki
JεB
Acquisitions
and
disposals
£ million
Organic
movement
£ million
3
—
1
766
122
418
Exchange
£ million
(304)
(35)
(110)
Other1
Hyperinflation2
£ million
£ million
—
—
63
189
17
10
2021
£ million
2,558
473
635
(15)
620
2022
£ million
3,212
577
1,017
(146)
871
Reported
movement
%
26
22
60
40
Organic volume
Reported volume
Organic net sales
Reported net
movement
movement
movement
sales movement
Reported net sales by market (%)
%
20
15
16
30
35
7
18
18
36
23
%
20
15
16
27
35
8
18
18
36
23
%
42
22
20
35
11
36
9
19
%
30
20
15
33
71
18
49
24
63
23
%
65
35
19
38
12
37
15
26
%
26
20
10
26
65
18
25
19
60
22
%
62
31
16
35
9
33
14
17
Great Britain
Northern Europe
Southern Europe
Ireland
Turkey
Eastern Europe
Other (principally Travel Retail)
Spirits
Beer
Other
Ready to drink
Global giants and local stars4
Organic volume
Organic net sales
Reported net
movement5
movement
sales movement
Reported net sales by category (%)
3. Exceptional items are in respect of Diageo’s decision, announced on 28 June 2022, to wind down its operations in Russia over the following six months. For further details on exceptional
5. Organic equals reported volume movement, except for Smirnoff, which had reported volume movement of 36% due to a reclassification
1. Fair value remeasurements. For further details see page 60
2. See page 76-83 for details of hyperinflation adjustment
operating items see pages 156-157.
4. Spirits brands excluding ready to drink and non-alcoholic variants
66
Diageo Annual Report 2022
Our markets
Our six markets are Great Britain, Northern Europe, Southern Europe,
Ireland, Eastern Europe and Turkey, and operate with end-to-end
accountability.
Supply operations
A number of Diageo’s Supply Chain and Procurement operations are
in Europe, including production sites in the United Kingdom, Ireland,
Italy and Turkey. The group owns 30 distilleries in Scotland, a Dublin
based brewery, distillery, five distilleries in Turkey and maturation and
packaging facilities in Scotland, England, Ireland, Italy and Turkey. The
team manufactures whisky, vodka, gin, rum, beer, cream liqueurs, raki
and other spirit-based drinks which are distributed in over 180 countries.
The company is currently investing £185 million in Scotch whisky and
tourism in Scotland, including the creation of a major new Johnnie
Walker global brand attraction in Edinburgh (Johnnie Walker Princes
Street), which opened its doors in September 2021. The distillery visitor
investment focuses on the ‘Four Corners distilleries’, Glenkinchie, Caol
Ila, Clynelish and Cardhu, celebrating the key role these single malts
play in the flavours of Johnnie Walker. The new visitor experiences at
Glenkinchie, Clynelish and Cardhu are already operational, and Caol
Ila is expected to open later in 2022. The iconic lost distillery of Port
Ellen is expected to be back in production in the summer of 2023.
Supporting our beer ambition, a £41 million investment has started at
the Belfast and Runcorn beer packaging facilities, to expand capacity
to support growth, with new capacity expected to be available during
2023. Also, we will be opening in autumn 2023 a £73 million Guinness
microbrewery and culture hub to be built in Covent Garden, London.
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.
Route to consumer
In Great Britain, we sell and market our products through Diageo GB
(spirits, beer and ready to drink) and Justerini & Brooks Fine Wines
(wines, private clients and spirits). In the Republic of Ireland and
Northern Ireland, Diageo sells and distributes directly to the on-trade
and the off-trade, as well as wholesalers. In France, our products are
sold through a joint venture arrangement with Moët Hennessy. In
Northern and Southern Europe, we distribute our spirits brands
primarily through our own in-market companies (IMC). In the Eastern
Europe market, we distribute our spirits and beer brands both via IMC
and distributors. In Turkey, we sell our products via the distribution
network of Mey İçki, our wholly owned subsidiary. Mey İçki distributes
both local brands (raki, other spirits and wine) and Diageo’s global
spirits brands.
‘Society 2030: Spirit of Progress’
Sustainability remains high on our agenda. This year, Guinness
launched a three-year regenerative agriculture pilot in Ireland and
started the transition to electric vehicles of the Guinness Quality fleet.
We launched our first water replenishment project in Turkey –
conserving water through efficient drip-irrigation in agriculture – which
has provided capacity to replenish over 15,000m3 a year. At Santa
Vittoria in Italy we’ll save around 30 tonnes of shrink film a year by
replacing it with PEFC-certified cardboard in some multipacks.
We continue to promote positive drinking. In Southern Europe over
20,000 people took part in ‘Wrong Side of the Road’ through online,
off-trade and on-trade activations. In Great Britain, Gordon’s 0.0%
festive sampling campaign encouraged consumers to visit DRINKiQ.
com. Brand campaigns reached over 80 million people with
responsible drinking messaging. And finally, we delivered on our
SMASHED targets for the region, educating over 78,000 young
people in total.
As part of our commitment to inclusion and diversity, we adapted
Learning for Life to support Ukrainian refugees in Belgium and Poland.
S
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Regional performance
• Reported net sales increased 26%, driven by strong organic growth.
Net sales were unfavourably impacted by foreign exchange,
primarily due to the weakening of the Turkish lira, which was partially
offset by a hyperinflation adjustment2.
• Organic net sales grew 30%, with strong double-digit growth across
all markets and a partial recovery of Travel Retail Europe.
• Growth reflects the recovery of the on-trade channel, particularly
in Ireland, Great Britain and Southern Europe, as well as resilient
consumer demand in the off-trade channel, where Diageo
continued to gain market share.
• Growth was also underpinned by the spirits category gaining share
of total beverage alcohol, premiumisation, price increases and
innovation.
• Spirits net sales grew 24%, with broad-based growth across scotch,
vodka, Baileys, gin, rum and raki.
• Beer net sales grew 63%, following a 21% decline in fiscal 21, with
strong growth in Guinness driven by the on-trade recovery in Ireland
and Great Britain, as well as growth from innovation.
• Strong improvement in organic operating margin of 671bps primarily
reflects leverage on operating costs as net sales recovered strongly.
Benefits from positive channel and product mix, price increases,
productivity savings and improved fixed cost absorption more than
offset cost inflation.
• Marketing investment increased 26%, supporting the on-trade
recovery and off-trade share momentum.
Market highlights
• Net sales in Great Britain grew 20%, reflecting a strong
recovery in the on-trade and resilient consumer demand
in the off-trade. Spirits grew 12%, with growth across
vodka, rum, Baileys and scotch, partially offset by a
decline in gin. Guinness grew strongly, up 52%, driven by
the on-trade recovery, as well as growth from innovation.
Ready to drink grew double digits reflecting category
momentum and innovation.
• Northern Europe net sales grew 15%, reflecting continued
strong performance in the off-trade and recovery in the
on-trade. Growth was broad-based across categories.
• Southern Europe net sales grew 33%, as a result of
on-trade restrictions easing and a partial recovery of
tourism. Scotch, gin, vodka, rum and Baileys all delivered
strong double-digit growth.
• Ireland net sales increased 71%, lapping a significant
decline in fiscal 21, driven by strong growth in Guinness
as the on-trade recovered.
• Eastern Europe net sales increased 18%, reflecting
continued momentum in the off-trade and recovery in the
on-trade. Following an announcement in March 2022 to
suspend exports to and sales in Russia, net sales in Russia
declined in fiscal 22. Diageo announced on 28 June 2022
that it would wind down its operations in Russia over the
following six months.
• Turkey net sales increased 49%, driven by price increases
in response to inflation, increases in excise duties and
currency devaluation. Growth also reflects strong volume
growth, up 18%, as on-trade restrictions eased,
and premiumisation.
Diageo Annual Report 2022
67
Business review continued
Asia Pacific
In Asia Pacific, our focus is to grow in both developed and emerging markets across our entire
portfolio, ranging from international and local spirits to ready to drink formats and beer. We have
a clear long-term strategy that enables us to allocate resources behind brands that win in key
consumer occasions and categories. We manage our portfolio to meet the increasing demands of
the growing middle class, and aim to inspire our consumers to drink better, not more. This strategy
ensures that we deliver consistent and efficient growth, with a key focus on developing our
premium and super deluxe segments across the region.
Key financials
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items1
Operating profit
Markets and categories
Asia Pacific
India
Greater China
Australia
South East Asia
North Asia
Travel Retail Asia and Middle East
Spirits
Beer
Ready to drink
Global giants, local stars and reserve2
Johnnie Walker
Shui Jing Fang4
McDowell’s
Guinness
The Singleton
Smirnoff
Baileys
Windsor
Exchange
£ million
(6)
4
5
Acquisitions
and disposals
£ million
—
—
—
Organic
movement
£ million
402
68
98
2021
£ million
2,488
418
608
—
608
2022
£ million
2,884
490
711
(241)
470
Reported
movement
%
16
17
17
(23)
Organic volume
movement
%
8
Reported volume
movement
%
8
Organic net sales
movement
%
16
Reported net
sales movement
%
16
Reported net sales by market (%)
7
6
2
14
(5)
135
8
4
3
7
6
2
14
(5)
125
8
4
3
17
13
—
20
12
178
17
9
2
16
17
(2)
19
6
184
18
7
(1)
Organic volume
movement3
%
24
16
5
5
11
13
12
1
Organic net sales
movement
%
28
19
6
9
16
14
13
(9)
Reported net
sales movement
%
28
24
4
7
18
14
12
(13)
India
Greater China
Australia
South East Asia
North Asia
Other (principally Travel
Retail Asia and Middle East)
Reported net sales by category (%)
Spirits
Beer
Ready to drink
Other
1. For further details on exceptional operating items see pages 156-157
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement, except for Smirnoff, which had reported volume movement of 12% due to a reclassification
4. Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand
5.
Indian-Made Foreign Liquor (IMFL) whisky
68
Diageo Annual Report 2022
In Asia Pacific, our focus is to grow in both developed and emerging markets across our entire
portfolio, ranging from international and local spirits to ready to drink formats and beer. We have
a clear long-term strategy that enables us to allocate resources behind brands that win in key
consumer occasions and categories. We manage our portfolio to meet the increasing demands of
the growing middle class, and aim to inspire our consumers to drink better, not more. This strategy
ensures that we deliver consistent and efficient growth, with a key focus on developing our
premium and super deluxe segments across the region.
Business review continued
Asia Pacific
Key financials
Net sales
Marketing
Operating profit before exceptional items
Exceptional operating items1
Operating profit
Markets and categories
Travel Retail Asia and Middle East
Global giants, local stars and reserve2
Asia Pacific
India
Greater China
Australia
South East Asia
North Asia
Spirits
Beer
Ready to drink
Johnnie Walker
Shui Jing Fang4
McDowell’s
Guinness
The Singleton
Smirnoff
Baileys
Windsor
2021
Exchange
and disposals
£ million
£ million
Acquisitions
Organic
movement
£ million
(6)
4
5
—
—
—
402
68
98
£ million
2,488
418
608
—
608
2022
£ million
2,884
490
711
(241)
470
Reported
movement
%
16
17
17
(23)
Organic volume
Reported volume
Organic net sales
Reported net
movement
movement
movement
sales movement
Reported net sales by market (%)
%
8
7
6
2
8
4
3
14
(5)
135
%
8
7
6
2
8
4
3
14
(5)
125
%
24
16
5
5
11
13
12
1
%
16
17
13
—
20
12
178
17
9
2
%
28
19
6
9
16
14
13
(9)
%
16
16
17
(2)
19
6
18
7
(1)
184
%
28
24
4
7
18
14
12
(13)
India
Greater China
Australia
South East Asia
North Asia
Other (principally Travel
Retail Asia and Middle East)
Spirits
Beer
Other
Ready to drink
Organic volume
Organic net sales
Reported net
movement3
movement
sales movement
Reported net sales by category (%)
1. For further details on exceptional operating items see pages 156-157
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement, except for Smirnoff, which had reported volume movement of 12% due to a reclassification
4. Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand
5.
Indian-Made Foreign Liquor (IMFL) whisky
68
Diageo Annual Report 2022
Our markets
Asia Pacific comprises India (including Nepal and Sri Lanka), Greater
China (China, Taiwan, Hong Kong and Macau), Australia (including
New Zealand), South East Asia (Vietnam, Thailand, Philippines,
Indonesia, Malaysia, Singapore, Cambodia, Laos, Myanmar),
North Asia (Korea and Japan) and Travel Retail Asia and Middle East.
Supply operations
We have distilleries in Chengdu, China, that produce baijiu and in
Bundaberg, Australia, that produce Bundaberg Rum. Our
manufacturing plant in Bali produces the highest quality spirits for
the Indonesian market. United Spirits Limited (USL) in India operates
15 manufacturing sites across the country. In addition, USL and Diageo
brands are also produced under licence by third-party manufacturers.
We have bottling plants in Thailand and Australia with ready to drink
manufacturing capabilities.
Route to consumer
In India, we manufacture, market and sell Indian whisky, rum, brandy
and other spirits through our 55.94% shareholding in USL. Diageo
also sells its own brands through USL.
In Greater China, our market presence is established through our
63.17% equity investment in Sichuan Shuijingfang Company Limited,
which manufactures and sells baijiu, and our wholly owned entity
Diageo China Limited, which sells Diageo brands, and a joint venture
arrangement with Moët Hennessy where administrative and distribution
costs are shared. Diageo operates a wholly owned subsidiary
in Taiwan.
In Australia, we manufacture, market and sell Diageo products. In New
Zealand, we operate through third-party distributors. In North Asia, we
have our own distribution company in South Korea. In Japan, sales are
through our wholly owned entity Diageo Japan, as well as through joint
venture agreements with Moët Hennessy. Airport shops and airline
operators are serviced through a dedicated Diageo sales and
marketing organisation. In the Middle East, we sell our products
through third-party distributors.
In South East Asia, spirits and beer are sold through a combination
of Diageo companies, joint venture arrangements, and third-party
distributors. In Thailand, Malaysia and Singapore, we have joint
venture arrangements with Moët Hennessy, sharing administrative and
distribution costs. Diageo operates wholly owned subsidiaries in the
Philippines and Vietnam. In addition, in Vietnam, we own a 45.57%
equity stake in Hanoi Liquor Joint Stock Company which manufactures
and sells vodka. In Indonesia, Guinness is brewed by and distributed
through third party arrangements.
‘Society 2030: Spirit of Progress’
Our positive drinking programmes continued to deliver. This year we
reached 86 million consumers with brand moderation messages across
the region. In Korea, we reached 1.75 million DRINKiQ users by
leveraging mobile applications. The Johnnie Walker #BeWhiskyWise
campaign drove visits to DRINKiQ.com, especially through a campaign
with Grab in the Philippines. ‘Wrong Side of the Road’, our flagship
programme on drink driving, reached over 91,000 consumers in
China across the year, and over 136,000 in India. This year we
launched SMASHED Online in Australia, Cambodia, Indonesia and
the Philippines. In total SMASHED educated over 202,000 young
people about the dangers of underage drinking across the Asia Pacific
region in fiscal 22.
With the ongoing pandemic, we adapted Learning for Life (L4L)
material to work online. In Indonesia, we partnered with the British
Chamber of Commerce in the Greater Jakarta region, and with
Saraswati in Bali, to provide training in business, hospitality and
ecotourism to 766 people. L4L further benefitted over 5,000 people
across Thailand, India, China, Vietnam and Taiwan. To champion
ethnic diversity in Australia, we launched a Reconciliation Action Plan
– strengthening relationships with the First Nation peoples.
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Moving towards sustainability, our facility in Bali, Indonesia is now
certified as using 100% renewable energy. Our first single malt distillery
in Yunnan, China will be carbon neutral when it opens.
In September 2021, we launched our spiced rum, Reeftip, in Australia.
Working in partnership with the Coral Nurture Program (CNP), 10% of
its profits will go towards regenerating the Great Barrier Reef. This year
Reeftip helped CNP propagate and plant more than 15,559 coral
pieces across 12,400m2 of reef. In April 2022, we announced our
partnership with ecoSPIRITS in Southeast Asia. Together we’ll pilot a
sustainable packaging format for on-trade venues in fiscal 23.
Regional performance
• Reported net sales grew 16%, primarily reflecting strong organic
growth.
• Organic net sales grew 16%, with strong growth in India and Greater
China, and a partial recovery of Travel Retail Asia and Middle East.
• Spirits grew 17%, mainly driven by scotch, Chinese white spirits and
IMFL whisky.5
• Organic operating margin was flat. Benefits from the partial recovery
of Travel Retail, positive category mix and price increases were offset
by strategic investments in Greater China, cost inflation and
one-off costs.
• Marketing investment increased 16%, mainly driven by
Greater China, across Chinese white spirits and scotch.
Market highlights
• India net sales grew 17%, driven by strong consumer
demand in the off-trade channel, recovery of the on-trade
channel and strong premiumisation. The prestige and
above segment grew 22%, ahead of popular segment
growth of 3%. Scotch grew strong double digits, driven by
Johnnie Walker, and IMFL whisky grew 7%.
• Greater China net sales increased 13%, primarily driven
by Chinese white spirits growth of 18%, despite the impact
of government restrictions related to Covid-19. Scotch
growth of 6% reflects double-digit growth in mainland
China, driven by the super-premium-plus segment,
partially offset by a decline in Taiwan.
• Australia net sales were flat, following strong double-digit
growth in fiscal 21.
• South East Asia net sales growth was impacted in the first
half of the year by on-trade restrictions, international
travel restrictions and reduced tourism due to Covid-19,
with performance improving in the second half.
• Travel Retail Asia and Middle East net sales grew triple
digits, following a significant decline in fiscal 21. This
reflects a partial recovery as international travel
restrictions eased and was primarily driven by
Johnnie Walker.
Diageo Annual Report 2022
69
Business review continued
Africa
In Africa, our strategy is to grow our beers fast and our spirits faster, through selective participation
across categories, including ‘near beer’, leveraging the broad range of the global Diageo portfolio.
Guinness, Malta Guinness and several local brands, including Tusker and Serengeti, lead our
brewing portfolio, while Johnnie Walker and Smirnoff are at the heart of our international premium
spirits offerings. Locally, we produce a range of mainstream spirits at the mid-level price point which
are tailored to local tastes and flavour profiles. Our operating model seeks to build resilience, agility
and strength into our African businesses as they develop. We drive smart investments through local
manufacturing, innovation and partnerships to unlock growth. Local sourcing is very important to our
strategy, currently at 80%, directly supporting our commercial operations whilst bringing wider
economic benefits to local communities, agricultural development and farmers.
Key financials
Net sales
Marketing
Operating profit
Markets and categories
Africa1
East Africa
Africa Regional Markets1
Nigeria
South Africa1
Spirits
Beer1
Ready to drink1
Global giants and local stars2
Guinness
Johnnie Walker
Smirnoff
Other beer:
Malta Guinness1
Senator
Tusker
Serengeti
2021
£ million
1,412
168
171
Exchange
£ million
(33)
(5)
(10)
Acquisitions
and
disposals
£ million
(5)
—
2
Organic
movement
£ million
308
36
152
2022
£ million
1,682
199
315
Reported
movement
%
19
18
84
Organic volume
movement
%
13
Reported volume
movement
%
12
Organic net sales
movement
%
22
Reported net
sales movement
%
19
Reported net sales by market (%)
22
9
1
6
12
14
11
22
7
1
4
12
13
5
25
14
30
12
21
22
28
24
9
26
10
20
19
20
Organic volume
movement3
%
4
16
9
Organic net sales
movement
%
17
22
21
Reported net
sales movement
%
13
22
21
30
38
14
9
53
36
27
9
40
33
26
10
East Africa
Africa Regional Markets
Nigeria
South Africa
Other (principally Travel Retail)
Reported net sales by category (%)
Spirits
Beer
Ready to drink
Other
1. Reported volume movement impacted by disposals. For further details see page 80.
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement, except for Malta Guinness, which had reported volume movement of 27%
70
Diageo Annual Report 2022
Business review continued
Africa
Key financials
Net sales
Marketing
Operating profit
Markets and categories
Africa1
East Africa
Africa Regional Markets1
Nigeria
South Africa1
Spirits
Beer1
Ready to drink1
Global giants and local stars2
Guinness
Johnnie Walker
Smirnoff
Other beer:
Malta Guinness1
Senator
Tusker
Serengeti
In Africa, our strategy is to grow our beers fast and our spirits faster, through selective participation
across categories, including ‘near beer’, leveraging the broad range of the global Diageo portfolio.
Guinness, Malta Guinness and several local brands, including Tusker and Serengeti, lead our
brewing portfolio, while Johnnie Walker and Smirnoff are at the heart of our international premium
spirits offerings. Locally, we produce a range of mainstream spirits at the mid-level price point which
are tailored to local tastes and flavour profiles. Our operating model seeks to build resilience, agility
and strength into our African businesses as they develop. We drive smart investments through local
manufacturing, innovation and partnerships to unlock growth. Local sourcing is very important to our
strategy, currently at 80%, directly supporting our commercial operations whilst bringing wider
economic benefits to local communities, agricultural development and farmers.
2021
£ million
1,412
168
171
Exchange
£ million
(33)
(5)
(10)
Acquisitions
and
disposals
£ million
(5)
—
2
Organic
movement
£ million
308
36
152
2022
£ million
1,682
199
315
Reported
movement
%
19
18
84
Organic volume
Reported volume
Organic net sales
Reported net
movement
movement
movement
sales movement
Reported net sales by market (%)
%
13
22
9
1
6
12
14
11
%
12
22
7
1
4
12
13
5
%
4
16
9
30
38
14
9
%
22
25
14
30
12
21
22
28
%
17
22
21
53
36
27
9
%
19
24
9
26
10
20
19
20
%
13
22
21
40
33
26
10
East Africa
Africa Regional Markets
Nigeria
South Africa
Other (principally Travel Retail)
Spirits
Beer
Other
Ready to drink
Organic volume
Organic net sales
Reported net
movement3
movement
sales movement
Reported net sales by category (%)
Our markets
The region comprises East Africa (Kenya, Tanzania and Uganda),
Africa Regional Markets (including Ghana, Cameroon, Indian Ocean
and Angola), Nigeria and South Africa.
Supply operations
We have 12 breweries in Africa and 12 facilities which provide blending,
malting and bottling services. In addition, our beer and mainstream
spirits brands are produced under license by third parties in 14 African
countries, and we distribute beer and spirits through several third-party
relationships across the region.
Route to consumer
Diageo has wholly owned entities in South Africa and Cameroon.
It has controlling stakes in East Africa Breweries Limited (EABL),
Guinness Nigeria, Guinness Ghana and Seychelles Breweries Limited,
and a majority stake in a JV in Angola. In addition, Diageo has
contract brewing arrangements in several countries across the region,
most notably with the Castel Group, as well as spirits distribution
contracts in more than 30 countries.
‘Society 2030: Spirit of Progress’
This year, as we continued to champion inclusion and diversity,
we invited 31 people with disabilities to our Diageo Bar Academy
and Learning for Life (L4L) programmes. We also worked with 71
smallholder farmers in our sorghum-growing areas for the production
of Senator Keg beer, and partnered with Sight Savers Kenya, an NGO
promoting the inclusion of people with disabilities. Overall we trained
over 7,500 people in our value chain through our L4L programme,
68% of whom were women.
Driving is one of our employees’ most dangerous work-related
activities. This year we refreshed our Driving on Roads programme
across Africa, launching a bespoke safe-driving programme with
e-learning modules. SMASHED educated over 188,000 people across
the region on the dangers of underage drinking and, in South Africa,
Wrong Side of The Road reached nearly 89,000 people.
Our breweries in Kenya and Uganda are in the final stage of
commissioning new biomass facilities, which will be operational in early
fiscal 23. In Ghana, meanwhile, as part of our efforts to reduce plastic
waste, we invested in 10 plastic buyback centres.
In Nigeria, a key water recycling and reuse site in Ogba began
delivering benefits and we’re in the final stages of constructing another
facility in Benin. Water recycling facilities are also operational in Kenya
and Uganda.
We delivered a 6.5% improvement in water efficiency this year and,
cumulatively, water use rates have improved by 19.7% against 2020
levels. The water volume we recycled or reused in our own production
is over 289,000m3, representing 5.1% of our total withdrawals.
This year we also reduced carbon emissions by 12.7% on last year,
despite a year-on-year increase of 12.2% in packaged volumes. These
reductions were driven by increased energy efficiency, and the use of
on-site renewable energy and renewable energy attribute certificates.
S
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Regional performance
• Reported net sales grew 19%, primarily driven by strong organic
growth. There were unfavourable impacts from foreign exchange
and the disposal of the Meta Abo Brewery in Ethiopia.
• Organic net sales grew 22%, primarily driven by East Africa and
Nigeria. All markets grew double digits.
• Strong growth in East Africa and Nigeria was driven by the
continued recovery of the on-trade channel, particularly in Kenya,
as well as price increases and focussed execution of our total
beverage alcohol strategy.
• Beer net sales grew 22%, primarily driven by Malta Guinness,
Guinness and Senator.
• Spirits net sales grew 21%, driven by double-digit growth in
both mainstream and international spirits, particularly scotch, gin
and vodka.
• Organic operating margin improved 643bps, primarily driven
by price increases and leverage on operating costs. The benefit
from price increases and productivity savings more than offset
cost inflation.
• Marketing investment increased 22%, in line with organic net
sales growth. Investment focussed on key categories, as well
as on e-commerce and new route to consumer opportunities.
Market highlights
• East Africa grew 25%, with double-digit growth in both
beer and spirits across all markets. This reflected the
continued recovery of the on-trade, benefitting beer in
particular, as well as price increases.
• Nigeria net sales grew 30%, primarily driven by price
increases, as well as an improved route to consumer, for
certain brands. Beer, mainstream spirits and international
spirits all grew double digits. Growth in beer was primarily
driven by Malta Guinness and Guinness.
• Africa Regional Markets net sales grew 14%, led by strong
growth in Ghana. Double-digit growth in beer, particularly
Malta Guinness, was driven by the recovery of the
on-trade channel and price increases.
• South Africa grew double digits. While restrictions related
to Covid-19 eased compared to fiscal 21, the operating
environment remained challenging.
1. Reported volume movement impacted by disposals. For further details see page 80.
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement, except for Malta Guinness, which had reported volume movement of 27%
70
Diageo Annual Report 2022
Diageo Annual Report 2022
71
Business review continued
Latin America and Caribbean
In Latin America and Caribbean (LAC) our strategic priority is to continue gaining share of TBA
while expanding margin, driven by our vibrant scotch portfolio, with Johnnie Walker leading
growth, as the most in-culture brand, and complemented by a broader base of brands and
categories contributing to growth, such as Don Julio in tequila, Tanqueray in gin and Smirnoff in
vodka, among others. This growth in share of TBA has been supported by a consumer-centric
upweighted marketing investment that allows us to enter new occasions where non-spirit TBA
categories have strong presence. To match our TBA growth agenda, we have upscaled our
Society 2030 programs to achieve broader impact across a larger population base.
Key financials
Net sales
Marketing
Operating profit
Markets and categories
Latin America and Caribbean
PUB
Mexico
CCA
Andean
PEBAC
Spirits
Beer
Ready to drink
Global giants and local stars2
Johnnie Walker
Buchanan’s
Don Julio
Old Parr
Smirnoff
Black & White
Baileys
Tanqueray
2021
£ million
1,046
161
303
Exchange
£ million
25
2
25
Acquisitions
and
disposals
£ million
3
1
—
Organic
movement
£ million
451
79
218
Other1
£ million
—
—
(8)
2022
£ million
1,525
243
538
Reported
movement
%
46
51
78
Organic volume
movement
%
17
Reported volume
movement
%
17
Organic net sales
movement
%
43
Reported net
sales movement
%
46
Reported net sales by market (%)
12
6
34
18
31
17
2
36
12
7
34
18
31
17
2
36
36
24
56
45
64
45
6
42
41
28
61
38
62
48
2
45
Organic volume
movement3
%
42
48
9
47
22
(3)
20
37
Organic net sales
movement
%
59
59
34
61
17
9
31
41
Reported net
sales movement
%
63
60
37
62
18
10
32
45
PUB
Mexico
CCA
Andean
PEBAC
Other (principally Travel Retail)
Reported net sales by category (%)
Spirits
Beer
Ready to drink
Other
1. Fair value remeasurements. For further details see page 60.
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement
72
Diageo Annual Report 2022
Business review continued
Latin America and Caribbean
In Latin America and Caribbean (LAC) our strategic priority is to continue gaining share of TBA
while expanding margin, driven by our vibrant scotch portfolio, with Johnnie Walker leading
growth, as the most in-culture brand, and complemented by a broader base of brands and
categories contributing to growth, such as Don Julio in tequila, Tanqueray in gin and Smirnoff in
vodka, among others. This growth in share of TBA has been supported by a consumer-centric
upweighted marketing investment that allows us to enter new occasions where non-spirit TBA
categories have strong presence. To match our TBA growth agenda, we have upscaled our
Society 2030 programs to achieve broader impact across a larger population base.
Key financials
Net sales
Marketing
Operating profit
Markets and categories
Latin America and Caribbean
Ready to drink
Global giants and local stars2
PUB
Mexico
CCA
Andean
PEBAC
Spirits
Beer
Johnnie Walker
Buchanan’s
Don Julio
Old Parr
Smirnoff
Black & White
Baileys
Tanqueray
2021
£ million
1,046
161
303
Exchange
£ million
25
2
25
Acquisitions
and
disposals
£ million
Organic
movement
£ million
3
1
—
451
79
218
Other1
£ million
—
—
(8)
2022
£ million
1,525
243
538
Reported
movement
%
46
51
78
Organic volume
Reported volume
Organic net sales
Reported net
movement
movement
movement
sales movement
Reported net sales by market (%)
%
17
12
6
34
18
31
17
2
36
%
17
12
7
34
18
31
17
2
36
%
42
48
9
47
22
(3)
20
37
%
43
36
24
56
45
64
45
6
42
%
59
59
34
61
17
9
31
41
%
46
41
28
61
38
62
48
2
45
%
63
60
37
62
18
10
32
45
PUB
Mexico
CCA
Andean
PEBAC
Other (principally Travel Retail)
Spirits
Beer
Other
Ready to drink
Organic volume
Organic net sales
Reported net
movement3
movement
sales movement
Reported net sales by category (%)
1. Fair value remeasurements. For further details see page 60.
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Organic equals reported volume movement
72
Diageo Annual Report 2022
Our markets
Our Latin America and Caribbean (LAC) business comprises five
markets: PUB (Paraguay, Uruguay and Brazil), Mexico, CCA (Central
America and Caribbean), Andean (Colombia and Venezuela) and
PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile). Moving forward,
from 1 July 2022, Uruguay and Paraguay domestic will move from PUB
to PEBAC. This will drive simplification and allow us to become more
consumer orientated and simplify ways of working.
Supply operations
Many of the brands sold in the region are manufactured by
Diageo’s Supply Chain & Procurement in Europe, but we also own
manufacturing facilities in Mexico, Brazil and Guatemala. We also
work with a wide array of local co-packers, bottlers, and licensed
brewers throughout Latin America and Caribbean. We recently
announced plans to expand our manufacturing footprint in Mexico,
through an investment of more than US$500 million dollars in new
facilities in the state of Jalisco. This investment will support the
company’s growth in the tequila category by expanding
production capacity.
Route to consumer
We drive an efficient route to consumer through differentiated models
tailored to each market’s size and needs. In Mexico and Brazil, our
in-market companies sell to a wide network of retailers, wholesalers
and resellers, who make our product available to shoppers in both
on- and off-premise outlets. In most of Central America and the
Caribbean, Argentina, Ecuador, Bolivia and Venezuela, we partner
with geographically exclusive distributors who are in charge of the
sales execution and marketing programmes. In Colombia, Peru and
Chile, we use hybrid models where Diageo sells directly to some key
accounts while distributors are used to improve our products’
physical availability.
‘Society 2030: Spirit of Progress’
Promoting positive drinking remains a priority. To continue to engage
our teams around our ‘Society 2030: Spirit of Progress’ ambition in
Latin America, we created a contest where almost 300 employees
developed and presented their own projects and ideas to promote
positive drinking. The two winning projects were ‘Derribando Mitos’,
based on a successful experience educating people about responsible
drinking and moderation in Peru and Argentina, with the aim to be
expanded to other markets, and ‘SMASHED Everywhere’, a regional
effort to scale the award-winning alcohol education programme and
implement it in all Latin American markets.
Our moderation messages reached 103 million consumers through
a number of initiatives, these included ‘Derribando Mitos’; and the
YouTube series ‘Wikitragos’ in Colombia, which reached more than
20 million people and features actors, journalists and influencers
promoting responsible drinking.
To help prevent underage drinking in Brazil, we activated SMASHED
in partnership with the Education Secretariat in the states of Ceará,
Pernambuco, Paraíba, Bahia and in Brasilia – reaching more than
102,000 students from public schools. In Jalisco, Mexico we
implemented the programme in partnership with the local government,
reaching over 16,000 students. The programme also took place in
Colombia and Peru, resulting in over 138,000 young people being
educated in total across the region.
We launched ‘Wrong Side of the Road’, our programme to educate
people around the world on the dangers of drink driving, in Colombia,
Mexico, Venezuela, Dominican Republic, Costa Rica, Panamá and
Brazil. It has reached more than 41,000 people, engaging our
employees, partners, customers and communities.
We remain committed to providing education and opportunity to our
communities. This year Learning for Life trained over 5,000 people to
become bartenders and entrepreneurs across the region, including in
Mexico, Dominican Republic, Panamá, Peru, Colombia, Venezuela and
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Brazil. The programme embraced our diversity and inclusion agenda
and had special initiatives like ‘#HablemosDeEmpreendedoras’ in
Mexico; and the launch of ‘Drinks por Elas’ in Brazil, an e-book to
celebrate Women’s Day featuring special drinks created by former
women students and educators of the programme.
Our sustainability journey continues. Through our WASH programme,
the introduction of a system to supply safe drinking water has
benefitted 421 people in the community of Manoel Dias in Ceará
state, Brazil.
Regional performance
• Reported net sales grew 46%, primarily reflecting strong organic
growth. A favourable currency impact primarily reflects the
strengthening of the Brazilian real and Mexican peso.
• Organic net sales increased 43%, following double-digit growth in
fiscal 21, with strong double-digit growth in all markets, particularly
PEBAC, CCA and Colombia.
• Growth reflects further recovery of the on-trade channel and strong
consumer demand in the off-trade channel, where Diageo continued
to gain share in all markets except Mexico.
• Strong price/mix was driven by price increases across all markets,
and positive mix from the strong performance of premium-plus
scotch across the region.
• Spirits net sales grew 45%, primarily driven by strong double-digit,
scotch growth, as well as strong growth across other categories,
particularly tequila and gin.
• Organic operating margin improved by 564bps, primarily driven by
price increases and premiumisation. This was partially offset by cost
inflation and an increase in marketing investment.
• Marketing investment increased 49%, ahead of net sales growth.
Market highlights
• PUB (Paraguay, Uruguay and Brazil) net sales increased
36%, mainly driven by Brazil, up 32%, reflecting
continued momentum in the off-trade channel, price
increases, premiumisation and further recovery in the
on-trade channel. PUB growth was mainly driven by
scotch, up 43%, as well as double-digit growth in ready
to drink, gin and vodka.
• Mexico net sales grew 24%, driven by scotch, up 29%,
and tequila, up 25%. The strong performance in scotch
reflects double digit growth in both Johnnie Walker and
Buchanan’s and the benefit from price increases.
• CCA (Central America and Caribbean) net sales grew
56%, primarily reflecting the recovery of the on-trade.
Growth was mainly driven by scotch, up 62%.
• Andean (Colombia and Venezuela) net sales increased
45%, reflecting strong growth in Colombia. Growth was
mainly driven by scotch, which benefitted from price
increases.
• PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) net
sales increased 64%, mainly driven by Chile and Peru,
reflecting strong performance of the off-trade, price
increases and the recovery of the on-trade channel.
Growth was mainly driven by scotch, up 52%, primarily
driven by Johnnie Walker.
Diageo Annual Report 2022
73
Category and brand review
Category and brand review
Key categories
Spirits2
Scotch
Tequila
Vodka3,4
Canadian whisky
Rum3
Liqueurs
Gin3
Indian-Made Foreign Liquor (IMFL) whisky
US whiskey
Beer
Ready to drink
Organic volume
movement1
%
10
18
47
12
(1)
5
11
16
5
5
14
14
Organic net sales
movement
%
21
29
55
11
6
6
10
18
7
14
25
18
Reported net sales
movement
%
21
29
57
11
7
6
8
18
5
16
22
21
1. Organic equals reported volume movement except for tequila 48%, liqueurs 10%, beer 13% and ready to drink 15%
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Vodka, rum and gin include IMFL variants
4. Vodka includes Ketel One Botanical
Volume (%)
Net sales (%)
Marketing spend (%)
Scotch
Vodka
US whiskey
Canadian whisky
Rum
IMFL whisky
Liqueurs
Gin
Tequila
Beer
Ready to drink
Other
• Spirits grew 21%, with broad-based growth across categories, and
particularly strong performance in scotch, tequila, vodka, gin and
Chinese white spirits.
• Scotch grew 29%, led by Johnnie Walker up 34%, with both
growing strong double digits across all regions.
• Tequila grew 55%, with Don Julio and Casamigos continuing
to gain share of the fast-growing tequila category within the
US spirits market.
Scotch
24% of Diageo’s reported net sales and grew 29%
• Strong double-digit growth across all regions, particularly in
Latin America and Caribbean and Asia Pacific. Growth also reflects
the partial recovery of Travel Retail where scotch grew strongly.
• Johnnie Walker net sales increased 34%, with strong double-digit
growth across all regions.
• Vodka grew 11%, with growth across all regions, particularly Europe.
• Johnnie Walker Black Label grew 39%, with double-digit growth
Smirnoff and Ketel One both grew double digits.
• Gin grew 18%, primarily driven by strong double-digit growth in
Europe, Africa and Latin America and Caribbean. Tanqueray and
Gordon’s both grew double digits.
• Beer grew 25%, primarily due to the strong recovery of Guinness, up
32%, driven by Ireland and Great Britain as on-trade restrictions
eased, as well as double-digit growth in Africa.
• Ready to drink grew 18%, with double-digit growth across Europe,
Africa, Latin America and Caribbean and North America.
across all regions.
• Johnnie Walker Blue Label grew 63%, with growth across all
regions, particularly North America and Asia Pacific.
• Johnnie Walker Red Label grew 22%, with double-digit growth in
Europe, Latin America and Caribbean, and Asia Pacific, partially
offset by a decline in North America.
• Scotch malts grew 17%, primarily driven by strong growth in
Asia Pacific and Europe.
• Primary scotch brands grew 14%, primarily driven by double-digit
growth of Black Dog and Black & White in India.
Tequila
10% of Diageo’s reported net sales and grew 55%
Growth reflects the strong performance of Casamigos and Don Julio
which continued to gain share of the fast-growing tequila category
within the US spirits market.
74
Diageo Annual Report 2022
Category and brand review
Category and brand review
Key categories
Canadian whisky
Spirits2
Scotch
Tequila
Vodka3,4
Rum3
Liqueurs
Gin3
US whiskey
Beer
Ready to drink
Indian-Made Foreign Liquor (IMFL) whisky
1. Organic equals reported volume movement except for tequila 48%, liqueurs 10%, beer 13% and ready to drink 15%
2. Spirits brands excluding ready to drink and non-alcoholic variants
3. Vodka, rum and gin include IMFL variants
4. Vodka includes Ketel One Botanical
Volume (%)
Net sales (%)
Marketing spend (%)
Organic volume
Organic net sales
Reported net sales
movement1
movement
movement
(1)
%
10
18
47
12
5
11
16
5
5
14
14
%
21
29
55
11
6
6
10
18
7
14
25
18
%
21
29
57
11
7
6
8
18
5
16
22
21
Scotch
Vodka
US whiskey
Canadian whisky
Rum
IMFL whisky
Liqueurs
Gin
Tequila
Beer
Ready to drink
Other
24% of Diageo’s reported net sales and grew 29%
• Strong double-digit growth across all regions, particularly in
Latin America and Caribbean and Asia Pacific. Growth also reflects
the partial recovery of Travel Retail where scotch grew strongly.
• Johnnie Walker net sales increased 34%, with strong double-digit
growth across all regions.
across all regions.
• Johnnie Walker Blue Label grew 63%, with growth across all
regions, particularly North America and Asia Pacific.
• Johnnie Walker Red Label grew 22%, with double-digit growth in
Europe, Latin America and Caribbean, and Asia Pacific, partially
offset by a decline in North America.
• Scotch malts grew 17%, primarily driven by strong growth in
Asia Pacific and Europe.
• Primary scotch brands grew 14%, primarily driven by double-digit
growth of Black Dog and Black & White in India.
Tequila
10% of Diageo’s reported net sales and grew 55%
Growth reflects the strong performance of Casamigos and Don Julio
which continued to gain share of the fast-growing tequila category
within the US spirits market.
• Vodka grew 11%, with growth across all regions, particularly Europe.
• Johnnie Walker Black Label grew 39%, with double-digit growth
• Spirits grew 21%, with broad-based growth across categories, and
particularly strong performance in scotch, tequila, vodka, gin and
Scotch
Chinese white spirits.
• Scotch grew 29%, led by Johnnie Walker up 34%, with both
growing strong double digits across all regions.
• Tequila grew 55%, with Don Julio and Casamigos continuing
to gain share of the fast-growing tequila category within the
US spirits market.
Smirnoff and Ketel One both grew double digits.
• Gin grew 18%, primarily driven by strong double-digit growth in
Europe, Africa and Latin America and Caribbean. Tanqueray and
Gordon’s both grew double digits.
• Beer grew 25%, primarily due to the strong recovery of Guinness, up
32%, driven by Ireland and Great Britain as on-trade restrictions
eased, as well as double-digit growth in Africa.
• Ready to drink grew 18%, with double-digit growth across Europe,
Africa, Latin America and Caribbean and North America.
Vodka
10% of Diageo’s reported net sales and grew 11%
• Growth was across all regions, with a particularly strong
performance in Europe.
Ready to drink
4% of Diageo’s reported net sales and grew 18%
• Growth was double digit across Europe, Africa, Latin America
and Caribbean and North America.
• Smirnoff net sales increased 10%, with double-digit growth in all
• Growth was primarily driven by Smirnoff Ice, as well as strong
regions, except North America, where net sales declined.
• Ketel One grew 16%, primarily driven by North America, with
double-digit growth in the core variant.
• Cîroc grew 6%, with strong growth in Europe. Net sales were broadly
flat in North America, lapping double-digit growth in fiscal 21, with
growth from recent innovations more than offset by declines in
other variants.
Canadian whisky
7% of Diageo’s reported net sales and grew 6%
• Growth was driven by Crown Royal in North America, with
double-digit growth in the core variant.
• Supply constraints of aged liquid led to slower growth in certain
variants and a decline in Crown Royal’s share of spirits and the
Canadian whisky category within the US spirits market.
Rum
5% of Diageo’s reported net sales and grew 6%
• Captain Morgan grew across all regions except North America,
with particularly strong growth in Europe.
• Zacapa grew in all regions, particularly in Europe.
Liqueurs
5% of Diageo’s reported net sales and grew 10%
• Growth was driven by Baileys Original in Europe and Latin America
and Caribbean.
• Baileys net sales declined in North America, primarily due to lapping
strong growth in fiscal 21.
Gin
5% of Diageo’s reported net sales and grew 18%
• Growth was across all regions except North America, with strong
double-digit growth in Europe, Africa, Latin America and Caribbean
and Asia Pacific.
• Tanqueray grew double digits in Europe, Latin America and
Caribbean and Asia Pacific.
• Gordon’s grew in all regions except North America.
• Growth in Africa was mainly driven by Gilbey’s and Gordon’s.
IMFL whisky
4% of Diageo’s reported net sales and grew 7%
• Growth was mainly driven by Royal Challenge and McDowell’s No.1.
US whiskey
2% of Diageo’s reported net sales and grew 14%
• Performance was driven by strong growth in Bulleit in North America,
despite glass supply constraints, which have now been resolved.
Beer
16% of Diageo’s reported net sales and grew 25%
• Growth was primarily driven by Guinness, up 32%, particularly in
Europe due to the on-trade recovery.
• Malta Guinness and Senator also grew strong double-digits in Africa,
with beer benefitting from the continued recovery of the on-trade,
price increases and an improved route to consumer in Nigeria.
• Net sales of Smirnoff flavoured malt beverages decreased in North
America, with growth in Smirnoff Ice more than offset by a decline in
Smirnoff seltzers.
double-digit growth in Crown Royal cocktails.
Global giants
37% of Diageo’s reported net sales and grew by 22%
• All global giants delivered net sales growth led by Johnnie Walker,
up 34%, which grew double digits across all regions.
Local stars
19% of Diageo’s reported net sales and grew 14%
• Growth was largely driven by double-digit growth in Buchanan’s in
Latin America and Caribbean and North America, Chinese white
spirits in Greater China, Crown Royal in North America and Old Parr
in Latin America and Caribbean.
Reserve
27% of Diageo’s reported net sales and grew 31%
• Growth was largely driven by the strong performance of Casamigos
and Don Julio in US Spirits, Johnnie Walker Reserve variants in all
regions, Chinese white spirits in Greater China and scotch malts.
Global giants, local stars and reserve1:
Organic volume
movement2
%
Organic net sales
movement
%
Reported net sales
movement
%
Global giants
Johnnie Walker
Guinness
Smirnoff
Baileys
Captain Morgan
Tanqueray
Local stars
Crown Royal
Shui Jing Fang3
McDowell’s
Buchanan’s
JεB
Old Parr
Black & White
Yenì Raki
Windsor
Bundaberg
Ypióca
Reserve
Don Julio
Casamigos
Scotch malts
Cîroc vodka
Ketel One4
Bulleit
25
16
11
10
3
18
1
16
5
36
17
47
7
9
1
1
(9)
24
83
14
4
12
12
34
32
11
9
2
20
6
19
5
39
22
59
20
15
(9)
(4)
8
36
90
17
6
12
16
35
30
11
8
2
20
8
24
4
40
16
59
20
14
(13)
(6)
12
38
93
16
7
14
17
1. Brands excluding ready to drink, non-alcoholic variants and beer except Guinness
2. Organic equals reported volume movement
3. Growth figures represent total Chinese white spirits of which Shui Jing Fang is
the principal brand
4. Ketel One includes Ketel One vodka and Ketel One Botanical
74
Diageo Annual Report 2022
Diageo Annual Report 2022
75
Definitions and reconciliation of non-GAAP measures to GAAP measures
Definitions and reconciliation of non-GAAP
measures to GAAP measures
(b) Acquisitions and disposals
For acquisitions in the current period, the post-acquisition results are
excluded from the organic movement calculations. For acquisitions in
the prior period, post-acquisition results are included in full in the prior
period but are included in the organic movement calculation from the
anniversary of the acquisition date in the current period. The acquisition
row also eliminates the impact of transaction costs that have been
charged to operating profit in the current or prior period in respect of
acquisitions that, in management’s judgement, are expected to be
completed.
Where a business, brand, brand distribution right or agency agreement
was disposed of or terminated in the reporting period, the group, in the
organic movement calculations, excludes the results for that business
from the current and prior period. In the calculation of operating profit,
the overheads included in disposals are only those directly attributable
to the businesses disposed of, and do not result from subjective
judgements of management.
(c) Exceptional items
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, and are excluded from the
organic movement calculations. It is believed that separate disclosure
of exceptional items and the classification between operating and non-
operating items 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.
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.
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 exceptional non-
operating items below operating profit in the income statement.
Exceptional current and deferred tax items comprise 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.
(d) Fair value remeasurement
Fair value remeasurement in the organic movement calculation reflects
an adjustment to eliminate the impact of fair value changes in
biological assets, earn-out arrangements that are accounted for as
remuneration and fair value changes relating to contingent
consideration liabilities and equity options that arose on acquisitions
recognised in the income statement.
Diageo’s strategic planning process is based on certain non-GAAP
measures, including organic movements. These non-GAAP measures
are chosen for planning and reporting, and some of them are used for
incentive purposes. The group’s management believes that these
measures provide valuable additional information for users of the
financial statements in understanding the group’s performance. These
non-GAAP measures should be viewed as complementary to, and not
replacements for, the comparable GAAP measures and reported
movements therein.
It is not possible to reconcile the forecast tax rate before exceptional
items, forecast organic net sales growth and forecast organic operating
profit increase to the most comparable GAAP measure as it is not
possible to predict, without unreasonable effort, with reasonable
certainty, the future impact of changes in exchange rates, acquisitions
and disposals and potential exceptional items.
Volume
Volume is a performance indicator that is measured on an equivalent
units basis to nine-litre cases of spirits. An equivalent unit represents one
nine-litre case of spirits, which is approximately 272 servings. A serving
comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or
beer. Therefore, to convert volume of products other than spirits to
equivalent units, the following guide has been used: beer in hectolitres,
divide by 0.9; wine in nine-litre cases, divide by five; ready to drink and
certain pre-mixed products that are classified as ready to drink in nine-
litre cases, divide by ten.
Organic movements
Organic information is presented using sterling amounts on a constant
currency basis excluding the impact of exceptional items, certain fair
value remeasurement, hyperinflation and acquisitions and disposals.
Organic measures enable users to focus on the performance of the
business which is common to both years and which represents those
measures that local managers are most directly able to influence.
Calculation of organic movements
The organic movement percentage is the amount in the row titled
‘Organic movement’ in the tables below, expressed as a percentage of
the relevant absolute amount in the row titled ‘2021 adjusted’. Organic
operating margin is calculated by dividing operating profit before
exceptional items by net sales after excluding the impact of exchange
rate movements, certain fair value remeasurements, hyperinflation and
acquisitions and disposals.
(a) Exchange rates
Exchange in the organic movement calculation reflects the adjustment
to recalculate the reported results as if they had been generated at the
prior period weighted average exchange rates.
Exchange impacts in respect of the external hedging of intergroup
sales by the markets in a currency other than their functional currency
and the intergroup recharging of services are also translated at prior
period weighted average exchange rates and are allocated to the
geographical segment to which they relate. Residual exchange
impacts are reported as part of the Corporate segment. Results from
hyperinflationary economies are translated at forward-looking rates
starting from the year ending 30 June 2023. Reported results are
recalculated as if they had been generated at those forward-looking
rates.
76
76
Diageo Annual Report 2022
Diageo Annual Report 2022
Definitions and reconciliation of non-GAAP measures to GAAP measures
Definitions and reconciliation of non-GAAP
measures to GAAP measures
Diageo’s strategic planning process is based on certain non-GAAP
measures, including organic movements. These non-GAAP measures
are chosen for planning and reporting, and some of them are used for
incentive purposes. The group’s management believes that these
measures provide valuable additional information for users of the
financial statements in understanding the group’s performance. These
non-GAAP measures should be viewed as complementary to, and not
replacements for, the comparable GAAP measures and reported
movements therein.
It is not possible to reconcile the forecast tax rate before exceptional
items, forecast organic net sales growth and forecast organic operating
profit increase to the most comparable GAAP measure as it is not
possible to predict, without unreasonable effort, with reasonable
certainty, the future impact of changes in exchange rates, acquisitions
and disposals and potential exceptional items.
(b) Acquisitions and disposals
For acquisitions in the current period, the post-acquisition results are
excluded from the organic movement calculations. For acquisitions in
the prior period, post-acquisition results are included in full in the prior
period but are included in the organic movement calculation from the
anniversary of the acquisition date in the current period. The acquisition
row also eliminates the impact of transaction costs that have been
charged to operating profit in the current or prior period in respect of
acquisitions that, in management’s judgement, are expected to be
completed.
Where a business, brand, brand distribution right or agency agreement
was disposed of or terminated in the reporting period, the group, in the
organic movement calculations, excludes the results for that business
from the current and prior period. In the calculation of operating profit,
the overheads included in disposals are only those directly attributable
to the businesses disposed of, and do not result from subjective
Volume
Volume is a performance indicator that is measured on an equivalent
units basis to nine-litre cases of spirits. An equivalent unit represents one
(c) Exceptional items
judgements of management.
nine-litre case of spirits, which is approximately 272 servings. A serving
comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or
beer. Therefore, to convert volume of products other than spirits to
equivalent units, the following guide has been used: beer in hectolitres,
divide by 0.9; wine in nine-litre cases, divide by five; ready to drink and
certain pre-mixed products that are classified as ready to drink in nine-
litre cases, divide by ten.
Organic movements
Organic information is presented using sterling amounts on a constant
currency basis excluding the impact of exceptional items, certain fair
value remeasurement, hyperinflation and acquisitions and disposals.
Organic measures enable users to focus on the performance of the
business which is common to both years and which represents those
measures that local managers are most directly able to influence.
Calculation of organic movements
The organic movement percentage is the amount in the row titled
‘Organic movement’ in the tables below, expressed as a percentage of
the relevant absolute amount in the row titled ‘2021 adjusted’. Organic
operating margin is calculated by dividing operating profit before
exceptional items by net sales after excluding the impact of exchange
rate movements, certain fair value remeasurements, hyperinflation and
acquisitions and disposals.
(a) Exchange rates
Exchange in the organic movement calculation reflects the adjustment
to recalculate the reported results as if they had been generated at the
changes.
prior period weighted average exchange rates.
Exchange impacts in respect of the external hedging of intergroup
sales by the markets in a currency other than their functional currency
and the intergroup recharging of services are also translated at prior
period weighted average exchange rates and are allocated to the
geographical segment to which they relate. Residual exchange
impacts are reported as part of the Corporate segment. Results from
hyperinflationary economies are translated at forward-looking rates
starting from the year ending 30 June 2023. Reported results are
recalculated as if they had been generated at those forward-looking
rates.
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, and are excluded from the
organic movement calculations. It is believed that separate disclosure
of exceptional items and the classification between operating and non-
operating items 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.
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.
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 exceptional non-
operating items below operating profit in the income statement.
Exceptional current and deferred tax items comprise 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
(d) Fair value remeasurement
Fair value remeasurement in the organic movement calculation reflects
an adjustment to eliminate the impact of fair value changes in
biological assets, earn-out arrangements that are accounted for as
remuneration and fair value changes relating to contingent
consideration liabilities and equity options that arose on acquisitions
recognised in the income statement.
Growth on a constant basis
Growth on a constant basis is a measure used by the group to
understand the trends of the business and its recovery towards pre-
Covid-19 performance.
The 2019 adjusted base is an appropriate comparator for fiscal 19 to
fiscal 22 growth calculation on a constant basis, as the rates used for
constant currency calculations in fiscal 20 were not materially
different from those used for constant currency calculations in fiscal
21 and fiscal 22, and there were no material acquisition or disposal
related adjustments or accounting treatment changes in the period.
2019 to 2022 growth on a constant basis is calculated as adding up
the respective periods’ organic movement in the row titled ‘Organic
movement’ in the tables below, expressed as a percentage of the
relevant absolute amount in the row titled ‘2019 adjusted’. The most
comparable GAAP financial measure is '2019 to 2022 reported
movement %' in the tables below which is calculated by combining
the reported movements for the respective periods, expressed as a
percentage of the 2019 reported amount.
Organic growth excluding Travel Retail and
Guinness
Additional information on the performance of the business excluding
Travel Retail and Guinness was provided in prior years. However, the
recovery of the on-trade for Guinness, particularly in Europe, and the
partial recovery of Travel Retail has made this measure redundant
and therefore no additional information is disclosed for fiscal 22.
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Adjustment in respect of hyperinflation
Before 2022, organic results from hyperinflationary economies were
translated at respective years’ actual rates which meant that organic
movements were broadly in line with reported movements. A review
of this methodology was completed in 2022 when Turkey became a
hyperinflationary economy.
The group's experience is that hyperinflationary conditions result in
price increases that include both normal pricing actions reflecting
changes in demand, commodity and other input costs or
considerations to drive commercial competitiveness, as well as
hyperinflationary elements and that for the calculation of organic
movements, the distortion from hyperinflationary elements should be
excluded.
Cumulative inflation over 100% (2% per month compounded) over
three years is one of the key indicators within IAS 29 to assess
whether an economy is deemed to be hyperinflationary. As a result,
the definition of 'Organic movements' has been updated to include
price growth in markets deemed to be hyperinflationary economies,
up to a maximum of 2% per month while also being on a constant
currency basis. Corresponding adjustments are made to all income
statement related lines in the organic movement calculations.
In the tables presenting the calculation of organic movements,
'hyperinflation' has been added as a reconciling item between
reported and organic movements that also includes the relevant IAS
29 adjustments. Organic movements for Argentina, Venezuela and
Lebanon have not been recalculated in line with this methodology as
their contribution is not significant.
Organic movement calculations for the year ended 30 June 2022 were as follows:
Volume (equivalent units)
2019 reported
Disposals
2019 adjusted
Organic movement (2020)
Organic movement (2021)
2020 and 2021 movement on a constant basis
Volume (equivalent units)
2021 reported
Disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
2022 reported
Organic movement %
2019 to 2022 reported growth %
2019 to 2022 growth on a constant basis %
North America
million
Europe
million
49.4
(2.1)
47.3
0.1
5.1
5.2
53.2
—
53.2
1.4
0.2
54.8
3
11
13
45.4
(0.1)
45.3
(5.2)
2.9
(2.3)
42.7
(0.7)
42.0
8.5
0.7
51.2
20
13
15
Asia
Pacific
million
95.1
—
95.1
(14.5)
7.0
(7.5)
87.6
—
87.6
6.6
—
94.2
8
(1)
(1)
Africa
million
Latin America
and Caribbean
million
Corporate
million
Total
million
33.6
(2.7)
30.9
(4.0)
4.8
0.8
31.8
(0.4)
31.4
4.0
0.3
35.7
13
6
16
22.4
—
22.4
(3.4)
4.1
0.7
23.1
—
23.1
4.0
—
27.1
17
21
21
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
245.9
(4.9)
241.0
(27.0)
23.9
(3.1)
238.4
(1.1)
237.3
24.5
1.2
263.0
10
7
9
76
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Definitions and reconciliation of non-GAAP measures to GAAP measures continued
Sales
2021 reported
Exchange
Disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
Exchange
Hyperinflation
2022 reported
Organic movement %
Net sales
2019 reported
Exchange
Reclassification
Disposals
2019 adjusted
Organic movement (2020)
Organic movement (2021)
2020 and 2021 movement on a constant basis
Net sales
2021 reported
Exchange(1)
Disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
Exchange(1)
Hyperinflation
2022 reported
Organic movement %
2019 to 2022 reported growth %
2019 to 2022 growth on a constant basis %
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
5,803
4,795
5,146
2,020
1,369
1
—
(1)
(21)
(8)
—
2
(30)
3
—
5,804
4,773
5,138
1,992
1,372
735
38
105
—
6,682
13
1,298
26
(885)
528
5,740
27
525
—
(39)
—
5,624
10
433
20
(42)
—
2,403
22
541
5
27
—
1,945
39
20
—
—
20
35
—
(1)
—
54
175
19,153
(3)
(51)
19,099
3,567
89
(835)
528
22,448
19
4,460
2,939
2,688
1,597
1,130
53
12,867
(2)
—
(91)
1,504
(200)
258
58
1,412
2
(20)
1,394
308
15
(35)
—
(34)
—
(75)
4,351
105
929
1,034
(19)
—
(1)
2,919
(358)
108
(250)
1
—
(1)
2,688
(423)
308
(115)
5,209
2,558
2,488
1
—
—
(20)
(2)
—
5,210
2,538
2,486
754
34
97
—
6,095
14
37
41
766
23
(304)
189
3,212
30
9
18
402
—
(4)
—
2,884
1,682
16
7
11
22
5
24
4
(10)
(1)
1,123
(169)
275
106
2
—
—
55
(16)
(18)
(34)
(48)
(10)
(169)
12,640
(1,061)
1,860
799
1,046
20
12,733
1
—
1,047
451
3
24
—
1,525
43
35
50
—
—
20
35
—
(1)
—
54
175
2
2
2
(40)
12,695
2,716
75
(223)
189
15,452
21
20
28
Marketing
2021 reported
Exchange
Disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
Fair value remeasurement of contingent considerations,
equity option and earn out arrangements
Exchange
Hyperinflation
2022 reported
Organic movement %
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
936
—
—
936
222
24
(1)
19
—
1,200
24
473
(1)
(1)
471
122
1
—
(34)
17
577
26
418
1
—
419
68
—
—
3
—
490
16
168
(3)
(2)
163
36
2
—
(2)
—
199
22
161
—
—
161
79
1
—
2
—
243
49
7
(1)
—
6
5
—
—
1
—
12
83
2,163
(4)
(3)
2,156
532
28
(1)
(11)
17
2,721
25
78
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Definitions and reconciliation of non-GAAP measures to GAAP measures continued
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
5,209
2,558
2,488
1,046
20
12,733
4,460
2,939
2,688
1,597
1,130
53
12,867
5,803
4,795
5,146
2,020
1,369
1
—
(1)
(21)
(8)
—
5,804
4,773
5,138
1,992
1,372
(885)
(39)
735
38
105
—
6,682
13
(34)
—
(75)
4,351
105
929
1,034
1
—
754
34
97
—
14
37
41
936
—
—
936
222
24
(1)
19
—
1,200
24
1,298
26
528
5,740
27
(19)
—
(1)
2,919
(358)
108
(250)
—
(20)
766
23
(304)
189
3,212
30
9
18
473
(1)
(1)
471
122
1
—
(34)
17
577
26
525
—
—
5,624
10
1
—
(1)
2,688
(423)
308
(115)
(2)
—
402
(4)
—
—
16
7
11
418
1
—
419
68
—
—
3
—
490
16
5,210
2,538
2,486
6,095
2,884
1,682
2
(30)
433
20
(42)
—
2,403
22
(2)
—
(91)
1,504
(200)
258
58
1,412
2
(20)
1,394
308
15
(35)
—
22
5
24
168
(3)
(2)
163
36
2
—
—
(2)
199
22
3
—
541
5
27
—
1,945
39
4
(10)
(1)
1,123
(169)
275
106
1
—
1,047
451
3
24
—
1,525
43
35
50
161
—
—
161
79
1
—
2
—
243
49
20
—
—
20
35
—
(1)
—
54
175
2
—
—
55
(16)
(18)
(34)
—
—
20
35
—
(1)
—
54
175
2
2
7
(1)
—
6
5
—
—
1
—
12
83
19,153
(3)
(51)
19,099
3,567
89
(835)
528
22,448
19
(48)
(10)
(169)
12,640
(1,061)
1,860
799
2
(40)
12,695
2,716
75
(223)
189
15,452
21
20
28
2,163
(4)
(3)
2,156
532
28
(1)
(11)
17
2,721
25
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
Sales
2021 reported
Exchange
Disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
Exchange
Hyperinflation
2022 reported
Organic movement %
Net sales
2019 reported
Exchange
Reclassification
Disposals
2019 adjusted
Net sales
2021 reported
Exchange(1)
Disposals(2)
2021 adjusted
Organic movement (2020)
Organic movement (2021)
2020 and 2021 movement on a constant basis
Organic movement
Acquisitions and disposals(2)
Exchange(1)
Hyperinflation
2022 reported
Organic movement %
2019 to 2022 reported growth %
2019 to 2022 growth on a constant basis %
Marketing
2021 reported
Exchange
Disposals(2)
2021 adjusted
Exchange
Hyperinflation
2022 reported
Organic movement %
Organic movement
Acquisitions and disposals(2)
Fair value remeasurement of contingent considerations,
equity option and earn out arrangements
78
78
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Operating profit before exceptional items
2019 reported
Exchange
Disposal
2019 adjusted
Organic movement (2020)
Organic movement (2021)
2020 and 2021 movement on a constant basis
4,116
—
(29)
4,087
(589)
627
38
North America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin America
and Caribbean
£ million
Corporate
£ million
Total
£ million
Operating profit before exceptional items
2021 reported
Exchange(1)
Fair value remeasurement of contingent considerations and
equity option
Acquisitions and disposals(2)
2021 adjusted
Organic movement
Acquisitions and disposals(2)
Fair value remeasurement of contingent considerations,
equity option and earn out arrangements
Fair value remeasurement of biological assets
Exchange(1)
Hyperinflation
2022 reported
Organic movement %
Organic operating margin % (3)
2022
2021
Margin movement (bps)
2019 to 2022 reported growth %
2019 to 2022 growth on a constant basis %
For the reconciliation of sales to net sales, see page 59.
(i)
(ii) Percentages and margin movement are calculated on rounded figures.
Notes: Information in respect of the organic movement calculations
2,237
(14)
7
9
2,239
148
(28)
32
—
63
—
2,454
7
40.0
43.0
(295)
123
35
635
(2)
27
(10)
650
418
11
36
—
(108)
10
1,017
64
32.3
25.6
671
66
48
608
(5)
—
—
603
98
—
—
—
10
—
711
16
24.3
24.3
2
74
18
171
10
—
12
193
152
(10)
—
—
(20)
—
315
79
20.3
13.8
643
106
92
303
7
—
—
310
218
—
(3)
(5)
18
—
538
70
35.2
29.6
564
112
84
(208)
(9)
—
—
(217)
(39)
—
—
—
18
—
3,746
(13)
34
11
3,778
995
(27)
65
(5)
(19)
10
(238)
(18)
4,797
26
n/a
n/a
n/a
(198)
(75)
31.0
29.8
121
17
25
(1)
The impact of movements in exchange rates on reported figures for net sales and operating profit was principally in respect of the translation exchange impact of the strengthening of sterling against the euro and
Turkish lira, partially offset by weakening of sterling against the US dollar
(2) Acquisitions and disposals that had an effect on volume, sales, net sales, marketing and operating profit in the year ended 30 June 2022, are detailed on page 80.
(3) Operating margin calculated by dividing Operating profit before exceptional items by net sales.
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Definitions and reconciliation of non-GAAP measures to GAAP measures continued
In the year ended 30 June 2022, the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows, as per footnote (2)
on the previous page:
Volume
equ. units million
Sales
£ million
Net sales
£ million
Marketing
£ million
Operating
profit
£ million
Year ended 30 June 2021
Acquisition
Aviation Gin and Davos Brands
Chase Distillery
Lone River Ranch Water
Loyal 9 Cocktails
Disposals
South African ready to drink
Meta Abo Brewery
Picon
—
—
—
—
—
—
(0.4)
(0.7)
(1.1)
—
—
—
—
—
(8)
(22)
(21)
(51)
—
—
—
—
—
(4)
(16)
(20)
(40)
Acquisitions and disposals
(1.1)
(51)
(40)
Year ended 30 June 2022
Acquisitions
Aviation Gin and Davos Brands
Chase Distillery
Lone River Ranch Water
Loyal 9 Cocktails
Mezcal Unión
21Seeds
Disposal
Meta Abo Brewery
Picon
Acquisitions and disposals
—
—
0.1
—
0.1
—
0.2
0.3
0.7
1
1.2
6
5
14
14
6
3
48
20
21
41
89
5
3
13
11
5
3
40
15
20
35
75
—
—
—
—
—
—
(2)
(1)
(3)
(3)
(4)
(1)
(13)
(5)
(1)
(2)
(26)
(2)
—
(2)
(28)
Earnings per share before exceptional items
Earnings per share before exceptional items is calculated by dividing profit attributable to equity shareholders of the parent company before
exceptional items by the weighted average number of shares in issue.
Earnings per share before exceptional items for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:
Profit attributable to equity shareholders of the parent company
Exceptional operating and non-operating items
Exceptional tax charges
Tax in respect of exceptional operating and non-operating items
Exceptional items attributable to non-controlling interests
Weighted average number of shares
Shares in issue excluding own shares
Dilutive potential ordinary shares
Basic earnings per share before exceptional items
Diluted earnings per share before exceptional items
80
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2022
£ million
3,249
405
—
(31)
(103)
3,520
million
2,318
7
2,325
pence
151.9
151.4
9
2
—
—
11
—
12
(12)
—
11
(11)
(2)
(13)
(2)
1
(2)
(29)
(10)
12
2
(27)
2021
£ million
2,660
1
88
(4)
1
2,746
million
2,337
8
2,345
pence
117.5
117.1
Definitions and reconciliation of non-GAAP measures to GAAP measures continued
In the year ended 30 June 2022, the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows, as per footnote (2)
Volume
equ. units million
Sales
£ million
Net sales
£ million
Marketing
£ million
Operating
profit
£ million
Acquisitions and disposals
(1.1)
(51)
(40)
on the previous page:
Year ended 30 June 2021
Acquisition
Aviation Gin and Davos Brands
Chase Distillery
Lone River Ranch Water
Loyal 9 Cocktails
Disposals
South African ready to drink
Meta Abo Brewery
Picon
Year ended 30 June 2022
Acquisitions
Aviation Gin and Davos Brands
Chase Distillery
Lone River Ranch Water
Loyal 9 Cocktails
Mezcal Unión
21Seeds
Disposal
Picon
Meta Abo Brewery
Profit attributable to equity shareholders of the parent company
Exceptional operating and non-operating items
Exceptional tax charges
Tax in respect of exceptional operating and non-operating items
Exceptional items attributable to non-controlling interests
Weighted average number of shares
Shares in issue excluding own shares
Dilutive potential ordinary shares
Basic earnings per share before exceptional items
Diluted earnings per share before exceptional items
80
80
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—
—
—
—
—
—
(0.4)
(0.7)
(1.1)
—
—
0.1
—
0.1
—
0.2
0.3
0.7
1
1.2
—
—
—
—
—
(8)
(22)
(21)
(51)
6
5
14
14
6
3
48
20
21
41
89
—
—
—
—
—
(4)
(16)
(20)
(40)
5
3
13
11
5
3
40
15
20
35
75
—
—
—
—
—
—
(2)
(1)
(3)
(3)
(4)
(1)
(13)
(5)
(1)
(2)
(26)
(2)
—
(2)
(28)
2022
£ million
3,249
405
—
(31)
(103)
3,520
million
2,318
7
2,325
pence
151.9
151.4
9
2
—
—
11
—
12
(12)
—
11
(11)
(2)
(13)
(2)
1
(2)
(29)
(10)
12
2
(27)
2021
£ million
2,660
1
88
(4)
1
2,746
million
2,337
8
2,345
pence
117.5
117.1
Acquisitions and disposals
Earnings per share before exceptional items
Earnings per share before exceptional items is calculated by dividing profit attributable to equity shareholders of the parent company before
exceptional items by the weighted average number of shares in issue.
Earnings per share before exceptional items for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:
Free cash flow
Free cash flow comprises the net cash flow from operating activities aggregated with the net cash received/paid for working capital loans
receivable, cash paid or received for investments and the net cash expenditure paid for property, plant and equipment and computer software that
are included in net cash flow from investing activities.
The remaining components of net cash flow from investing activities that do not form part of free cash flow, as defined by the group’s management,
are in respect of the acquisition and sale of businesses and non-working capital loans to and from associates.
The group’s management regards the purchase and disposal of property, plant and equipment and computer software as ultimately non-
discretionary since ongoing investment in plant, machinery and technology is required to support the day-to-day operations, whereas acquisition
and sale of businesses are discretionary.
Where appropriate, separate explanations are given for the impacts of acquisition and sale of businesses, dividends paid and the purchase of own
shares, each of which arises from decisions that are independent from the running of the ongoing underlying business.
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Free cash flow reconciliations for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:
Net cash inflow from operating activities
Disposal of property, plant and equipment and computer software
Purchase of property, plant and equipment and computer software
Movements in loans and other investments
Free cash flow
2022
£ million
3,935
17
(1,097)
(72)
2,783
2021
£ million
3,654
13
(626)
(4)
3,037
Operating cash conversion
Operating cash conversion is calculated by dividing cash generated from operations excluding cash inflows and outflows in respect of exceptional
items, dividends received from associates, maturing inventories, provisions, other items and post employment payments in excess of the amount
charged to operating profit by operating profit before depreciation, amortisation, impairment and exceptional operating items.
The measure is excluding any hyperinflation adjustment above the organic treatment of hyperinflationary economies. The ratio is stated at the
budgeted exchange rates for the respective year and is expressed as a percentage.
Operating cash conversion for the year ended 30 June 2022 and 30 June 2021 were as follows:
Profit for the year
Taxation
Share of after tax results of associates and joint ventures
Net finance charges
Non-operating items
Operating profit
Exceptional operating items
Fair value remeasurement
Depreciation, amortisation and impairment(1)
Hyperinflation adjustment
Retranslation to budgeted exchange rates
Cash generated from operations
Net exceptional cash paid/(received)(2)
Post employment payments less amounts included in operating profit(1)
Net movement in maturing inventories(3)
Provision movement
Dividends received from associates
Other items(1)
Hyperinflation adjustment
Retranslation to budgeted exchange rates
2022
£ million
3,338
1,049
(417)
422
17
4,409
388
(60)
489
(10)
27
5,243
5,212
15
89
360
58
(190)
(53)
(22)
42
5,511
2021
£ million
2,799
907
(334)
373
(14)
3,731
15
36
447
—
375
4,604
4,857
(49)
35
174
60
(290)
(88)
—
387
5,086
Operating cash conversion
105.1 %
110.5 %
(1) Excluding exceptional items.
(2) Exceptional cash payments for other donations was £2 million (2021 - £1 million) and for winding down Russian operations was £13 million (2021 – £nil). For the year ended 30 June 2021,
exceptional cash received for substitution drawback was £60 million and exceptional cash payments for tax payments were £10 million.
(3) Excluding non-cash movements such as exchange and the impact of acquisitions and disposals.
Diageo Annual Report 2022
Diageo Annual Report 2022
81
81
Definitions and reconciliation of non-GAAP measures to GAAP measures continued
Return on average invested capital
Return on average invested capital is used by management to assess the return obtained from the group’s asset base and is calculated to aid
evaluation of the performance of the business.
The profit used in assessing the return on average invested capital reflects operating profit before exceptional items attributable to equity
shareholders of the parent company plus share of after tax results of associates and joint ventures after applying the tax rate before exceptional
items for the fiscal year. Average invested capital is calculated using the average derived from the consolidated balance sheets at the beginning,
middle and end of the year. Average capital employed comprises average net assets attributable to equity shareholders of the parent company for
the year, excluding net post employment benefit assets/liabilities (net of deferred tax) and average net borrowings. This average capital employed
is then aggregated with the average restructuring and integration costs net of tax, and goodwill written off to reserves at 1 July 2004, the date of
transition to IFRS, to obtain the average total invested capital.
Calculations for the return on average invested capital for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:
Operating profit
Exceptional operating items
Profit before exceptional operating items attributable to non-controlling interests
Share of after tax results of associates and joint ventures
Tax at the tax rate before exceptional items of 22.5% (2021 – 22.2%)
Average net assets (excluding net post employment benefit assets/liabilities)
Average non-controlling interests
Average net borrowings
Average integration and restructuring costs (net of tax)
Goodwill at 1 July 2004
Average invested capital
Return on average invested capital
2022
£ million
4,409
388
(192)
417
(1,173)
3,849
8,428
(1,641)
12,859
1,639
1,562
22,847
2021
£ million
3,731
15
(138)
334
(906)
3,036
8,146
(1,587)
12,672
1,639
1,562
22,432
16.8 %
13.5 %
Adjusted net borrowings to adjusted EBITDA
Diageo manages its capital structure with the aim of achieving capital efficiency, providing flexibility to invest through the economic cycle and giving
efficient access to debt markets at attractive cost levels. The group regularly assesses its debt and equity capital levels to enhance its capital structure
by reviewing the ratio of adjusted net borrowings to adjusted EBITDA (earnings before exceptional operating items, interest, tax, depreciation,
amortisation and impairment).
Calculations for the ratio of adjusted net borrowings to adjusted EBITDA at 30 June 2022 and 30 June 2021 are set out in the table below:
Borrowings due within one year
Borrowings due after one year
Fair value of foreign currency derivatives and interest rate hedging instruments
Lease liabilities
Less: Cash and cash equivalents
Net borrowings
Post employment benefit liabilities before tax
Adjusted net borrowings
Profit for the year
Taxation
Net finance charges
Depreciation, amortisation and impairment (excluding exceptional intangible impairment)
Exceptional intangible impairment
EBITDA
Exceptional operating items (excluding impairment)
Non-operating items
Adjusted EBITDA
Adjusted net borrowings to adjusted EBITDA
82
82
Diageo Annual Report 2022
Diageo Annual Report 2022
2022
£ million
1,522
14,498
(73)
475
(2,285)
14,137
402
14,539
3,338
1,049
422
492
336
2021
£ million
1,862
12,865
(232)
363
(2,749)
12,109
574
12,683
2,799
907
373
447
—
5,637
4,526
49
17
15
(14)
5,703
4,527
2.5
2.8
Definitions and reconciliation of non-GAAP measures to GAAP measures continued
Return on average invested capital
evaluation of the performance of the business.
Return on average invested capital is used by management to assess the return obtained from the group’s asset base and is calculated to aid
The profit used in assessing the return on average invested capital reflects operating profit before exceptional items attributable to equity
shareholders of the parent company plus share of after tax results of associates and joint ventures after applying the tax rate before exceptional
items for the fiscal year. Average invested capital is calculated using the average derived from the consolidated balance sheets at the beginning,
middle and end of the year. Average capital employed comprises average net assets attributable to equity shareholders of the parent company for
the year, excluding net post employment benefit assets/liabilities (net of deferred tax) and average net borrowings. This average capital employed
is then aggregated with the average restructuring and integration costs net of tax, and goodwill written off to reserves at 1 July 2004, the date of
transition to IFRS, to obtain the average total invested capital.
Calculations for the return on average invested capital for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:
Adjusted net borrowings to adjusted EBITDA
Diageo manages its capital structure with the aim of achieving capital efficiency, providing flexibility to invest through the economic cycle and giving
efficient access to debt markets at attractive cost levels. The group regularly assesses its debt and equity capital levels to enhance its capital structure
by reviewing the ratio of adjusted net borrowings to adjusted EBITDA (earnings before exceptional operating items, interest, tax, depreciation,
amortisation and impairment).
Calculations for the ratio of adjusted net borrowings to adjusted EBITDA at 30 June 2022 and 30 June 2021 are set out in the table below:
16.8 %
13.5 %
Operating profit
Exceptional operating items
Profit before exceptional operating items attributable to non-controlling interests
Share of after tax results of associates and joint ventures
Tax at the tax rate before exceptional items of 22.5% (2021 – 22.2%)
Average net assets (excluding net post employment benefit assets/liabilities)
Average non-controlling interests
Average net borrowings
Average integration and restructuring costs (net of tax)
Goodwill at 1 July 2004
Average invested capital
Return on average invested capital
Fair value of foreign currency derivatives and interest rate hedging instruments
Borrowings due within one year
Borrowings due after one year
Lease liabilities
Net borrowings
Less: Cash and cash equivalents
Post employment benefit liabilities before tax
Adjusted net borrowings
Profit for the year
Taxation
Net finance charges
Exceptional intangible impairment
EBITDA
Exceptional operating items (excluding impairment)
Non-operating items
Adjusted EBITDA
Adjusted net borrowings to adjusted EBITDA
82
82
Diageo Annual Report 2022
Diageo Annual Report 2022
Depreciation, amortisation and impairment (excluding exceptional intangible impairment)
2022
£ million
4,409
388
(192)
417
(1,173)
3,849
8,428
(1,641)
12,859
1,639
1,562
22,847
2022
£ million
1,522
14,498
(73)
475
(2,285)
14,137
402
14,539
3,338
1,049
422
492
336
49
17
2021
£ million
3,731
15
(138)
334
(906)
3,036
8,146
(1,587)
12,672
1,639
1,562
22,432
2021
£ million
1,862
12,865
(232)
363
(2,749)
12,109
574
12,683
2,799
907
373
447
—
15
(14)
5,637
4,526
5,703
4,527
2.5
2.8
Tax rate before exceptional items
Tax rate before exceptional items is calculated by dividing the total tax charge before tax charges and credits in respect of exceptional items, by
profit before taxation adjusted to exclude the impact of exceptional operating and non-operating items, expressed as a percentage. The measure is
used by management to assess the rate of tax applied to the group’s operations before tax on exceptional items.
The tax rates from operations before exceptional and after exceptional items for the year ended 30 June 2022 and year ended 30 June 2021 are set
out in the table below:
Tax before exceptional items (a)
Tax in respect of exceptional items
Exceptional tax charge
Taxation on profit (b)
Profit before taxation and exceptional items (c)
Non-operating items
Exceptional operating items
Profit before taxation (d)
Tax rate before exceptional items (a/c)
Tax rate after exceptional items (b/d)
2022
£ million
1,080
(31)
—
1,049
4,792
(17)
(388)
4,387
2021
£ million
823
(4)
88
907
3,707
14
(15)
3,706
22.5 %
23.9 %
22.2 %
24.5 %
S
T
R
A
T
E
G
C
I
R
E
P
O
R
T
Other definitions
Volume share is a brand’s retail volume expressed as a percentage of
the retail volume of all brands in its segment. Value share is a brand’s
retail sales value expressed as a percentage of the retail sales value of
all brands in its segment. Unless otherwise stated, share refers to value
share.
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 duties are not always passed on to the
customer and where a customer fails to pay for a product received, the
group cannot reclaim the excise duty. The group therefore recognises
excise duty as a cost to the group.
Price/mix is the number of percentage points difference between the
organic movement in net sales and 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.
Shipments comprise the volume of products sold to Diageo’s immediate
(first tier) customers. Depletions are the estimated volume of the onward
sales made by Diageo's immediate customers. Both shipments and
depletions are measured on an equivalent units basis.
References to emerging markets include Poland, Eastern Europe,
Turkey, Africa, Latin America and Caribbean, and Asia Pacific
(excluding Australia, Korea and Japan).
References to reserve brands include, but are not limited to, Johnnie
Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold
Label Reserve, Johnnie Walker Aged 18 Years, John Walker & Sons
Collection and other Johnnie Walker super premium brands; The
Singleton, Cardhu, Talisker, Lagavulin, Oban and other malt brands;
Buchanan’s Special Reserve, Buchanan’s Red Seal; Haig Club whisky;
Copper Dog whisky; Roe & Co; Bulleit Bourbon, Bulleit Rye; Orphan
Barrel whiskey; Tanqueray No. TEN, Tanqueray ready to drink,
Tanqueray Malacca Gin; Aviation, Chase, Jinzu and Villa Ascenti gin;
Cîroc, Ketel One vodka, Ketel One Botanical; Don Julio, Casamigos and
DeLeón tequila; Zacapa, Bundaberg Master Distillers' Collection and
Pampero Aniversario rum; Shui Jing Fang, Seedlip, Belsazar and Pierde
Almas.
References to global giants include the following brand families:
Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and
Guinness. Local stars include Buchanan’s, Bundaberg, Crown Royal,
JεB, McDowell’s, Old Parr, Yenì Raki, Black & White, Shui Jing Fang,
Windsor and Ypióca. Global giants and local stars exclude ready to
drink, non-alcoholic variants and beer except Guinness. References to
Shui Jing Fang represent total Chinese white spirits of which Shui Jing
Fang is the predominant brand.
References to ready to drink also include ready to serve products, such
as pre-mixed cans in some markets.
References to beer include cider, flavoured malt beverages and some
non-alcoholic products such as Malta Guinness.
The results of Hop House 13 Lager are included in the Guinness figures.
There is no industry-agreed definition for price tiers and for data
providers such as IWSR, definitions can vary by market. Diageo bases
internal price tier definitions on a segmentation most consistent with
IWSR as the IWSR taxonomy is widely accepted and provides the
industry with a common point of reference.
References to the group include Diageo plc and its consolidated
subsidiaries.
This Strategic Report, which has been approved by a duly appointed and authorised committee of the
Board of Directors, was signed on its behalf by Tom Shropshire, the Company Secretary, on 27 July 2022.
Diageo Annual Report 2022
Diageo Annual Report 2022
83
83
Board of Directors
Leadership and experience
Key strengths: Has extensive
experience of over 20 years with
the Diageo group at operational
and leadership levels and within
the consumer products industry,
which brings valuable insight to
lead the group and implement
the strategy
Current external appointments:
Chairman of the Council, Scotch
Whisky Association; Non-
Executive Director, Tapestry Inc.;
Member of the Global Advisory
Board, Kellogg School of
Management, Northwestern
University; Trustee, Movement to
Work; Member, International
Alliance for Responsible
Drinking, CEO Group
Previous Diageo roles: Chief
Operating Officer; President,
North America; Chairman,
Diageo Asia Pacific; Chairman,
Diageo Latin America and
Caribbean; senior management
positions, Guinness and then
Diageo
Previous relevant experience:
Marketing and strategy roles,
Nestlé, Booz Allen Hamilton Inc.
and Whirlpool
E
Lavanya Chandrashekar
Chief Financial Officer
Nationality: American
Appointed: Chief Financial
Officer and Executive Director:
July 2021
Key strengths: Brings
broad financial expertise,
commercial skills and strong
consumer goods experience to
manage the group’s affairs
relating to financial controls,
accounting, tax, treasury and
investor relations
Previous Diageo roles: Chief
Financial Officer, Diageo North
America and Global Head of
Investor Relations
Previous relevant experience:
Vice President Finance,
Global Cost Leadership and
Supply Chain, Mondelēz
International; VP Finance,
North America, Mondelēz
International, VP Finance,
Eastern Europe, Middle East and
Africa, Mondelēz International;
various senior finance roles at
Procter & Gamble
A N R
Susan Kilsby
Senior Independent Director
Nationality: American/British
Appointed: Senior Independent
Director: October 2019
(Appointed Non-Executive
Director: April 2018 and
Chairman of the Remuneration
Committee: January 2019)
Key strengths: Brings wide-
ranging corporate governance
and board level experience
across a number of industries,
including a consumer goods
sector focus, with particular
expertise in mergers and
acquisitions, corporate finance
and transaction advisory work
Current external appointments:
Non-Executive Chair,
Fortune Brands Home & Security,
Inc.; Non-Executive Director,
Unilever PLC, NHS England;
Member, the Takeover Panel
Previous relevant experience:
Senior Independent Director
and Chair of Remuneration
Committee, BHP Group Plc,
BHP Group Limited; Senior
Independent Director, BBA
Aviation plc; Chairman, Shire
plc; Chairman, Mergers and
Acquisitions EMEA, Credit Suisse;
Senior Advisor, Credit Suisse;
Non-Executive Director,
Goldman Sachs International,
Keurig Green Mountain,
L’Occitane International,
Coca-Cola HBC
A N R
Melissa Bethell
Non-Executive Director
Nationality: American/British
Appointed: Non-Executive
Director: June 2020
Key strengths: Has extensive
international corporate and
financial experience, including
in relation to private equity,
financial sectors, strategic
consultancy and advisory
services, as well as having strong
non-executive experience at
board and committee levels
across a range of industries,
including retail, consumer
goods and financial services
Current external appointments:
Managing Partner, Atairos
Europe; Non-Executive Director,
Tesco PLC, Exor N.V.; Trustee,
Sadlers Wells
Previous relevant experience:
Managing Director and Senior
Advisor, Private Equity, Bain
Capital; Non-Executive Director,
Atento S.A., Worldpay plc,
Samsonite S.A.
A N R
Karen Blackett
Non-Executive Director
Nationality: British
Appointed: Non-Executive
Director: June 2022
Key strengths: Brings expertise
in marketing, media and the
creative industries, as well as
broad experience in public
policy and strategic initiatives
through a number of different
government, industry and public
bodies
N
Javier Ferrán
Chairman
Nationality: Spanish
Appointed: Chairman and
Chairman of the Nomination
Committee: January 2017
(Appointed Chairman Designate
and Non-Executive Director:
July 2016)
Key strengths: Brings extensive
board-level experience from the
drinks and consumer products
industry, including at chief
executive level, and has a
wealth of experience in
consumer goods through his
venture capital activities to draw
from in his role as Chairman
and leader of the Board
Current external appointments:
Chairman, International
Consolidated Airlines Group,
S.A.; Senior Advisor and
chairman of investee company
board, BlackRock Long Term
Private Capital
Previous relevant experience:
Non-Executive Director and
Senior Independent Director,
Associated British Foods plc;
Non-Executive Director,
Coca-Cola European Partners
plc; Member, Advisory Board of
ESADE Business School;
President and CEO, Bacardi
Limited; Non-Executive Director,
SABMiller plc
E
Ivan Menezes
Chief Executive
Nationality: American/British
Appointed: Chief Executive:
July 2013 (Appointed Executive
Director: July 2012)
84
Diageo Annual Report 2022
Board of Directors
Leadership and experience
Key strengths: Has extensive
experience of over 20 years with
the Diageo group at operational
and leadership levels and within
the consumer products industry,
which brings valuable insight to
lead the group and implement
the strategy
Current external appointments:
Chairman of the Council, Scotch
Whisky Association; Non-
Executive Director, Tapestry Inc.;
Member of the Global Advisory
Board, Kellogg School of
Management, Northwestern
University; Trustee, Movement to
Work; Member, International
Alliance for Responsible
Drinking, CEO Group
Previous Diageo roles: Chief
Operating Officer; President,
North America; Chairman,
Diageo Asia Pacific; Chairman,
Diageo Latin America and
Caribbean; senior management
positions, Guinness and then
Diageo
Previous relevant experience:
Marketing and strategy roles,
Nestlé, Booz Allen Hamilton Inc.
and Whirlpool
E
Lavanya Chandrashekar
Chief Financial Officer
Nationality: American
Appointed: Chief Financial
Officer and Executive Director:
July 2021
Key strengths: Brings
broad financial expertise,
commercial skills and strong
consumer goods experience to
manage the group’s affairs
relating to financial controls,
accounting, tax, treasury and
investor relations
Previous Diageo roles: Chief
Financial Officer, Diageo North
America and Global Head of
Investor Relations
Previous relevant experience:
Vice President Finance,
Global Cost Leadership and
Supply Chain, Mondelēz
International; VP Finance,
North America, Mondelēz
International, VP Finance,
Eastern Europe, Middle East and
Africa, Mondelēz International;
various senior finance roles at
Procter & Gamble
A N R
Susan Kilsby
Senior Independent Director
Nationality: American/British
Appointed: Senior Independent
Director: October 2019
(Appointed Non-Executive
Director: April 2018 and
Chairman of the Remuneration
Committee: January 2019)
Key strengths: Brings wide-
ranging corporate governance
and board level experience
across a number of industries,
including a consumer goods
sector focus, with particular
expertise in mergers and
acquisitions, corporate finance
and transaction advisory work
Current external appointments:
Non-Executive Chair,
Fortune Brands Home & Security,
Inc.; Non-Executive Director,
Unilever PLC, NHS England;
Member, the Takeover Panel
Previous relevant experience:
Senior Independent Director
and Chair of Remuneration
Committee, BHP Group Plc,
BHP Group Limited; Senior
Independent Director, BBA
Aviation plc; Chairman, Shire
plc; Chairman, Mergers and
Acquisitions EMEA, Credit Suisse;
Senior Advisor, Credit Suisse;
Non-Executive Director,
Goldman Sachs International,
Keurig Green Mountain,
L’Occitane International,
Coca-Cola HBC
A N R
Melissa Bethell
Non-Executive Director
Nationality: American/British
Appointed: Non-Executive
Director: June 2020
Key strengths: Has extensive
international corporate and
financial experience, including
in relation to private equity,
financial sectors, strategic
consultancy and advisory
services, as well as having strong
non-executive experience at
board and committee levels
across a range of industries,
including retail, consumer
goods and financial services
Current external appointments:
Managing Partner, Atairos
Europe; Non-Executive Director,
Tesco PLC, Exor N.V.; Trustee,
Sadlers Wells
Previous relevant experience:
Managing Director and Senior
Advisor, Private Equity, Bain
Capital; Non-Executive Director,
Atento S.A., Worldpay plc,
Samsonite S.A.
A N R
Karen Blackett
Non-Executive Director
Nationality: British
Appointed: Non-Executive
Director: June 2022
Key strengths: Brings expertise
in marketing, media and the
creative industries, as well as
broad experience in public
policy and strategic initiatives
through a number of different
government, industry and public
bodies
N
Javier Ferrán
Chairman
Nationality: Spanish
Appointed: Chairman and
Chairman of the Nomination
Committee: January 2017
(Appointed Chairman Designate
and Non-Executive Director:
July 2016)
Key strengths: Brings extensive
board-level experience from the
drinks and consumer products
industry, including at chief
executive level, and has a
wealth of experience in
consumer goods through his
venture capital activities to draw
from in his role as Chairman
and leader of the Board
Current external appointments:
Chairman, International
Consolidated Airlines Group,
S.A.; Senior Advisor and
chairman of investee company
board, BlackRock Long Term
Private Capital
Previous relevant experience:
Non-Executive Director and
Senior Independent Director,
Associated British Foods plc;
Non-Executive Director,
Coca-Cola European Partners
plc; Member, Advisory Board of
ESADE Business School;
President and CEO, Bacardi
Limited; Non-Executive Director,
SABMiller plc
E
Ivan Menezes
Chief Executive
Nationality: American/British
Appointed: Chief Executive:
July 2013 (Appointed Executive
Director: July 2012)
84
Diageo Annual Report 2022
Current external appointments:
UK Country Manager, WPP plc;
Chief Executive Officer, GroupM
UK; Chancellor, University of
Portsmouth; Founding Trustee,
Black Equity Organisation;
Non-Executive Director, Creative
UK; Non-Executive Director,
The MOBO Trust
Previous relevant experience:
UK Race Equality Business
Champion, HM Government;
Business Ambassador,
Department for International
Trade, HM Government;
Chairwoman, MediaCom
UK & Ireland, Chief Executive
Officer, MediaCom UK;
Chief Operations Officer,
MediaCom EMEA; Marketing
Director, MediaCom
A N R
Valérie Chapoulaud-Floquet
Non-Executive Director
Nationality: French
Appointed: Non-Executive
Director: January 2021
Key strengths: Brings strong
experience and expertise in the
luxury consumer goods sector,
having spent her career in the
industry working in a number
of international markets,
including developed and
emerging markets, and as a
former CEO in the premium
drinks industry
Current external appointments:
Non-Executive Director,
Danone S.A., Nextstage S.C.A.,
Jacobs Holding AG; Vice
Chairman, Sofisport
Previous relevant experience:
Chief Executive Officer, Rémy
Cointreau S.A.; President and
CEO for the Americas, Louis
Vuitton, LVMH Group; President
and CEO for North America,
Louis Vuitton, LVMH Group;
President South Europe, Louis
Vuitton, LVMH Group; President
and CEO, Louis Vuitton Taiwan,
LVMH Group; President, Luxury
Product Division for the USA,
L’Oréal Group
institutions, as well as advisory
roles in advertising and
production of consumer goods
Current external appointments:
Head of the Global Business
Group, Meta Platforms Inc.;
Co-President, Norwood;
Member, Mayor’s Business
Advisory Board; Chair, Follicular
Lymphoma Foundation
Previous relevant experience:
Executive Chairman,
Karmarama; Deputy Chairman,
Grey London; Board Director,
BBH, Fragrance Foundation;
President, Institute of Practitioners
in Advertising; Director, Women’s
Prize for Fiction; Co-Chair,
Creative Industries Council;
Member, HMG Industrial
Strategy Council; Board
Member, CEW; Trustee, White
Ribbon Alliance; Chair,
Corporate Board, Women’s Aid
A N R
Alan Stewart
Non-Executive Director
Nationality: British
Appointed: Non-Executive
Director: September 2014
(Appointed Chairman of the
Audit Committee: January 2017)
Key strengths: Has a strong
background in financial,
investment banking and
commercial matters, with
particular expertise in consumer
retail industries, as well as board
and committee level experience
at industry institutions
Current external appointments:
Non-Executive Director, Reckitt
Benckiser Group PLC
Previous relevant experience:
Chief Financial Officer, Tesco
PLC; Non-Executive Director,
Tesco Bank; Chief Financial
Officer, Marks & Spencer Group
plc, AWAS; Non-Executive
Director, Games Workshop plc;
Group Finance Director, WH
Smith PLC; Chief Executive,
Thomas Cook UK
A N R
Sir John Manzoni
Non-Executive Director
Nationality: British
Appointed: Non-Executive
Director: October 2020
Key strengths: Has strong
commercial executive
experience as a former CEO
in the energy sector and
non-executive board level
experience, including in the
alcoholic beverage industry,
as well as more recent
expertise in public policy and
government affairs
Current external appointments:
Chairman, SSE plc; Chairman,
Atomic Weapons Establishment;
Non-Executive Director, KBR Inc.
Previous relevant experience:
Chief Executive of the Civil
Service and Permanent
Secretary of the Cabinet Office,
HM Government; President and
Chief Executive Officer, Talisman
Energy; Chief Executive, Refining
& Marketing, BP p.l.c.; Chief
Executive, Gas & Power, BP p.l.c.;
Non-Executive Director,
SABMiller plc
A N R
Lady Mendelsohn
Non-Executive Director
Nationality: British
Appointed: Non-Executive
Director: September 2014
Key strengths: Has specialist
knowledge and understanding
of consumer-facing emerging
technologies, privacy and data
issues, as well as wide
experience of board and
committee level appointments
across diverse commercial,
governmental and charitable
G
O
V
E
R
N
A
N
C
E
A N R
Ireena Vittal
Non-Executive Director
Nationality: Indian
Appointed: Non-Executive
Director: October 2020
Key strengths: Brings a wealth of
FMCG experience from a career
in executive consulting with a
focus on consumer sectors and
emerging markets, including
India, as well as broad
experience in non-executive
board roles in the UK and India
Current external appointments:
Non-Executive Director,
Compass Group PLC, Housing
Development Finance
Corporation Limited; Non-
Executive and Lead
Independent Director, Godrej
Consumer Products Limited,
Wipro Limited
Previous relevant experience:
Head of Marketing and Sales,
Hutchinson Max Telecom;
Partner, McKinsey and
Company; Non-Executive
Director, Titan Company Limited,
Tata Global Beverages Limited,
Tata Industries, GlaxoSmithKline
Consumer Healthcare
Board committees
A Audit Committee
E Executive Committee
N Nomination Committee
R Remuneration Committee
Chairman of the committee
Diageo Annual Report 2022
85
Executive Committee
Expertise and diversity
1
7
2
8
3
9
4
10
5
11
6
Ivan Menezes and
Lavanya Chandrashekar
are also members of the
Executive Committee.
Their biographies can
be found on page 84.
1 Ewan Andrew, President, Global Supply Chain & Procurement
and Chief Sustainability Officer
Nationality: British | Appointed: September 2019
Previous Diageo roles: Supply Director, International Supply Centre;
Senior Vice President, Supply Chain & Procurement, Latin America &
Caribbean; Senior Vice President Manufacturing & Distilling, North
America; various supply chain, operational management and
procurement roles
Current external appointments: Member, Scotch Whisky
Association Council, Scottish Business Climate Collaboration Board,
One Planet Business for Biodiversity Board
2 Alvaro Cardenas, President, Latin America and Caribbean
Nationality: Colombian | Appointed: January 2021
Previous Diageo roles: Managing Director, Andean Region; Director,
End-to-End Global Commercial Processes; Finance Director, South East
Asia Region, PUB (Paraguay, Uruguay and Brazil) Region, Andean
Region, Colombia
3 Debra Crew, President, North America & Global Supply
Nationality: American | Appointed: July 2020
Previous Diageo roles: Non-Executive Director, Diageo plc
Current external appointments: Non-Executive Director, Stanley Black &
Decker, Inc.
Previous relevant experience: Non-Executive Director, Newell Brands,
Mondelēz International Inc.; President and CEO, Reynolds American,
Inc; President, PepsiCo North America Nutrition, PepsiCo Americas
Beverages, Western Europe Region; various positions with Kraft Foods,
Nestlé, S.A., and Mars
4 Cristina Diezhandino, Chief Marketing Officer
Nationality: Spanish | Appointed: July 2020
Previous Diageo roles: Global Category Director, Scotch & Managing
Director, Reserve Brands; Managing Director, Caribbean and Central
America; Marketing & Innovation Director, Diageo Africa; Category
Director, Scotch Portfolio & Gins; Global Brand Director, Johnnie Walker
Previous relevant experience: Corporate Marketing Director, Allied
Domecq Spain; marketing roles, Unilever HPC US, UK and Spain
5 John Kennedy, President, Europe and India
Nationality: American | Appointed: July 2016
Previous Diageo roles: President, Europe and Western Europe; Chief
Operating Officer, Western Europe; Marketing Director, Australia;
General Manager for Innovation, North America; President and Chief
Executive Officer, Diageo Canada; Managing Director, Diageo Ireland
Previous relevant experience: Brand management roles,
GlaxoSmithKline and Quaker Oats
86
Diageo Annual Report 2022
6 Daniel Mobley, Global Corporate Relations Director
Nationality: British | Appointed: June 2017
Previous Diageo roles: Corporate Relations Director, Europe
Previous relevant experience: Regional Head of Corporate Affairs,
India & South Asia, Regional Head of Corporate Affairs, Africa, Group
Head of Government Relations, Standard Chartered; extensive
government experience including in HM Treasury and Foreign &
Commonwealth Office
7 Hina Nagarajan, Managing Director and CEO of
United Spirits Limited
Nationality: Indian | Appointed: July 2021
Previous Diageo roles: CEO-Designate, United Spirits Limited;
Managing Director, Africa Regional Markets
Previous relevant experience: Managing Director, China & SVP North
Asia, Reckitt Benckiser; General Manager, Malaysia & Singapore,
Reckitt Benckiser; CEO & MD Mary Kay India; senior marketing and
general management roles, ICI Paints India and Nestlé India
8 Dayalan Nayager, President, Africa
Nationality: South African/British | Appointed: July 2022
Previous Diageo roles: Managing Director, Great Britain and Justerini &
Brooks, Ireland and France, Global Travel; Regional Director, Global
Travel Europe; Commerical Director, South Africa; Customer Marketing
Director, South Africa; Key Account Director, South Africa
Previous relevant experience: Various positions, Heinz, Mars and
Pick n Pay Retailers
9 John O’Keeffe, President, Asia Pacific & Global Travel
Nationality: Irish | Appointed: July 2015
Previous Diageo roles: President, Africa & Beer; CEO and Managing
Director, Guinness Nigeria; Global Head, Innovation; Global Head,
Beer and Baileys; Managing Director, Russia and Eastern Europe;
various management and marketing positions
10 Louise Prashad, Chief HR Officer
Nationality: British | Appointed: January 2022
Previous Diageo roles: Global Talent Director; Talent Director, Africa;
HR Director, Europe, West Latin America and Caribbean,
Global Functions
Previous relevant experience: various HR roles, Diageo, Stakis Group
and Hilton Hotels
11 Tom Shropshire, General Counsel & Company Secretary
Nationality: American/British | Appointed: July 2021
Current external appointments: Member of the Steering Committee,
The Parker Review; Trustee, Charity Projects Limited (Comic Relief);
Director, Comic Relief Limited
Previous relevant experience: Partner & Global US Practice Head,
Linklaters LLP
Executive Committee
Expertise and diversity
1
7
2
8
3
9
4
10
5
11
6
Ivan Menezes and
Lavanya Chandrashekar
are also members of the
Executive Committee.
Their biographies can
be found on page 84.
1 Ewan Andrew, President, Global Supply Chain & Procurement
and Chief Sustainability Officer
Nationality: British | Appointed: September 2019
Previous Diageo roles: Supply Director, International Supply Centre;
Senior Vice President, Supply Chain & Procurement, Latin America &
Caribbean; Senior Vice President Manufacturing & Distilling, North
America; various supply chain, operational management and
procurement roles
Current external appointments: Member, Scotch Whisky
Association Council, Scottish Business Climate Collaboration Board,
One Planet Business for Biodiversity Board
2 Alvaro Cardenas, President, Latin America and Caribbean
Nationality: Colombian | Appointed: January 2021
Previous Diageo roles: Managing Director, Andean Region; Director,
End-to-End Global Commercial Processes; Finance Director, South East
Asia Region, PUB (Paraguay, Uruguay and Brazil) Region, Andean
Region, Colombia
3 Debra Crew, President, North America & Global Supply
Nationality: American | Appointed: July 2020
Previous Diageo roles: Non-Executive Director, Diageo plc
Current external appointments: Non-Executive Director, Stanley Black &
Decker, Inc.
Previous relevant experience: Non-Executive Director, Newell Brands,
Mondelēz International Inc.; President and CEO, Reynolds American,
Inc; President, PepsiCo North America Nutrition, PepsiCo Americas
Beverages, Western Europe Region; various positions with Kraft Foods,
Nestlé, S.A., and Mars
4 Cristina Diezhandino, Chief Marketing Officer
Nationality: Spanish | Appointed: July 2020
Previous Diageo roles: Global Category Director, Scotch & Managing
Director, Reserve Brands; Managing Director, Caribbean and Central
America; Marketing & Innovation Director, Diageo Africa; Category
Previous relevant experience: Corporate Marketing Director, Allied
Domecq Spain; marketing roles, Unilever HPC US, UK and Spain
5 John Kennedy, President, Europe and India
Nationality: American | Appointed: July 2016
Previous Diageo roles: President, Europe and Western Europe; Chief
Operating Officer, Western Europe; Marketing Director, Australia;
General Manager for Innovation, North America; President and Chief
Executive Officer, Diageo Canada; Managing Director, Diageo Ireland
Previous relevant experience: Brand management roles,
GlaxoSmithKline and Quaker Oats
86
Diageo Annual Report 2022
6 Daniel Mobley, Global Corporate Relations Director
Nationality: British | Appointed: June 2017
Previous Diageo roles: Corporate Relations Director, Europe
Previous relevant experience: Regional Head of Corporate Affairs,
India & South Asia, Regional Head of Corporate Affairs, Africa, Group
Head of Government Relations, Standard Chartered; extensive
government experience including in HM Treasury and Foreign &
Commonwealth Office
7 Hina Nagarajan, Managing Director and CEO of
United Spirits Limited
Nationality: Indian | Appointed: July 2021
Previous Diageo roles: CEO-Designate, United Spirits Limited;
Managing Director, Africa Regional Markets
Previous relevant experience: Managing Director, China & SVP North
Asia, Reckitt Benckiser; General Manager, Malaysia & Singapore,
Reckitt Benckiser; CEO & MD Mary Kay India; senior marketing and
general management roles, ICI Paints India and Nestlé India
8 Dayalan Nayager, President, Africa
Nationality: South African/British | Appointed: July 2022
Previous Diageo roles: Managing Director, Great Britain and Justerini &
Brooks, Ireland and France, Global Travel; Regional Director, Global
Travel Europe; Commerical Director, South Africa; Customer Marketing
Director, South Africa; Key Account Director, South Africa
Previous relevant experience: Various positions, Heinz, Mars and
Pick n Pay Retailers
9 John O’Keeffe, President, Asia Pacific & Global Travel
Nationality: Irish | Appointed: July 2015
Previous Diageo roles: President, Africa & Beer; CEO and Managing
Director, Guinness Nigeria; Global Head, Innovation; Global Head,
Beer and Baileys; Managing Director, Russia and Eastern Europe;
various management and marketing positions
Nationality: British | Appointed: January 2022
Previous Diageo roles: Global Talent Director; Talent Director, Africa;
HR Director, Europe, West Latin America and Caribbean,
Previous relevant experience: various HR roles, Diageo, Stakis Group
Global Functions
and Hilton Hotels
11 Tom Shropshire, General Counsel & Company Secretary
Nationality: American/British | Appointed: July 2021
Current external appointments: Member of the Steering Committee,
The Parker Review; Trustee, Charity Projects Limited (Comic Relief);
Director, Comic Relief Limited
Previous relevant experience: Partner & Global US Practice Head,
Linklaters LLP
Director, Scotch Portfolio & Gins; Global Brand Director, Johnnie Walker
10 Louise Prashad, Chief HR Officer
Letter from the Chairman of the Board of Directors
Effective governance
enabling growth
Dear Shareholder
I am delighted to present, on
behalf of the Board, our
corporate governance report for
the year ended 30 June 2022,
which summarises the role of the
Board in providing effective
leadership in promoting the long-
term sustainable success of
Diageo.
The Board is very conscious of the role that it plays in ensuring that
Diageo operates in a manner which is consistent with the highest
standards of corporate governance - doing business the right way,
from grain to glass. A core element of this is the work that the Board
has done over the year to ensure that Diageo contributes to wider
society through sustainable, long-term practices as well as through our
2030 targets. This has included reviewing and adapting internal
governance processes to ensure that ESG considerations are fully
embedded within Diageo's decision-making, and that our planning
and decisions can be fully informed by the environmental and societal
implications of those decisions. This is of particular importance at a time
when we are continuing to invest, for long-term growth, in our brands
and portfolio.
Effective leadership is also dependent on a healthy, empowered and
positive business culture. Diageo has a strong and long-established
purpose, culture and set of values which collectively anchor our
priorities and actions even in recent challenging years. The importance
of culture has been particularly acute this year as our workforce adapts
to new ways of working and is supported to accelerate growth of our
business. Further details on how the Board has monitored and assessed
culture can be found on pages 96 to 97. The Board has expanded its
workforce engagement programme through all Directors directly
participating in sessions with a broad cross-section of Diageo's
workforce as well as through additional surveys and feedback received
on the behavioural change and optimal culture required to achieve
Diageo's ambition. Insights from this engagement programme have
been used to inform the steps taken by the Board to simplify ways of
working and to improve efficiency of systems and processes, with the
goal of empowering our people through enabling more agility and
speed in execution. More details of how we have engaged with and
listened to our people are set out in our workforce engagement
statement on page 96.
Diageo is performing strongly despite the challenges of the pandemic
over the last few years, continued instability in the global environment
and economic uncertainty, and current inflationary pressures on supply
chains. Performance is dependent on the Board providing effective
leadership and setting Diageo's strategic priorities, enabling swift
execution by management underpinned by a transparent and values-
based culture. We will continue to refine and develop our governance
processes, to ensure robustness and efficiency, at Board level and
throughout the company, in a way which enables the creation of
sustainable long-term value for our shareholders and other
stakeholders.
Javier Ferrán
(Chairman)
G
O
V
E
R
N
A
N
C
E
Compliance with the UK Corporate
Governance Code
During the year ended 30 June 2022, Diageo has applied the
Principles and complied with the Provisions of the UK Corporate
Governance Code 2018 (the Code), with the exception of
Provision 38 in respect of company pension contributions for
incumbent Executive Directors, details of which are set out on
page 113. Below are some examples of Diageo’s compliance
with certain areas of the Code, together with cross-references to
other sections of this Annual Report where further information
can be found.
• Whistle-blowing mechanisms (Provision 6): SpeakUp is a
confidential global service which can be used by the
workforce or any third parties to raise concerns about
anything relating to Diageo, including potential breaches of
Diageo’s Code of Business Conduct, policies, standards or
the law, or anything which might cause risk of harm to
others or the environment. SpeakUp, which is administered
by an independent service provider, can be accessed either
online or by telephone and can, in countries where legally
permitted, be used anonymously and reports kept
confidential. Allegations are investigated by independent
Diageo teams and progress on investigations monitored by
the Business Integrity team. Where allegations are
substantiated, appropriate disciplinary and corrective
actions are taken. The Audit Committee receives and
reviews regular reports on allegations, including trends
information and investigation closure rates. Since all of
Diageo’s non-executive directors attend the Audit
Committee, all non-executive directors who make up the
Board routinely review the findings of the company's whistle-
blowing processes in accordance with Provision 6 of the
Code. Further information is set out on page 102.
Independence (Provisions 9, 10, 11 and 12): The Chairman
was considered independent on his appointment, as
assessed against the criteria set out in Provision 10 of the
Code. The roles of chairman and chief executive are not
exercised by the same person. Over half of the Directors are
independent non-executives and none have served for
longer than nine years. Susan Kilsby is our Senior
Independent Director and meets with other non-executive
directors, without the Chairman attending, twice yearly to
appraise the performance of the Chairman. Further
information about the structure of the Board is set out on
pages 88-90.
•
• Board effectiveness evaluation (Provisions 21 and 22): A
formal rigorous assessment and evaluation of the
performance of the Board, its Committees, its processes and
procedures, and of individual directors including the
Chairman is undertaken each year. During this year, the
evaluation was carried out through an internal process
overseen by the Nomination Committee and facilitated by
Diageo’s company secretarial team. Further details about
this internal Board evaluation exercise, its methodology,
recommendations and actions are set out on page 95.
Diageo Annual Report 2022
Diageo Annual Report 2022
87
87
Corporate governance report
Enabling our ambition
Corporate governance structure and division of responsibilities
Non-Executive Directors
Melissa Bethell, Valérie
Chapoulaud-Floquet, Sir John
Manzoni, Lady Mendelsohn, Alan
Stewart, Ireena Vittal and Karen
Blackett
The Non-Executive Directors, all of
whom the Board has determined are
independent, experienced and
influential individuals from a diverse
range of industries, backgrounds and
countries.
• Constructively challenge the
Executive Directors
• Develop proposals on strategy
• Scrutinise the performance of
management
• Satisfy themselves on the integrity of
the financial information, controls
and systems of risk management
• Set the levels of remuneration for
Executive Directors and senior
management
• Make recommendations to the
Board concerning appointments to
the Board
• Devote such time as is necessary to
the proper performance of their
duties
A summary of the terms and conditions of
appointment of the Non-Executive Directors is
available at https://www.diageo.com/en/
our-business/corporate-governance.
Nomination
Committee
Audit
Committee
Remuneration
Committee
s
r
e
v
i g ht and rigoro
u
s c
Board of Directors
h
a
l
l
e
n
g
e
ependent o
d
In
Chief Executive has
delegated authority to
these Committees
Leaders h i p
Executive
Committee
Filings
Assurance
Committee
Finance
Committee
Audit & Risk
Committee
Business unit risk
management
Senior Independent Director
Susan Kilsby
• Acts as a sounding board for the
Chairman and serves as an
intermediary for the other Directors
where necessary
• Together with the other Non-
Executive Directors, leads the review
of the performance of the Chairman,
taking into account the views of the
Executive Directors
• Available to shareholders if they
have concerns where contact
through the normal channels has
failed
Company Secretary
Tom Shropshire
• The Board is supported by the
Company Secretary who ensures
information is made available to
Board members in a timely fashion
• Supports the Chairman in setting
Board agendas, designing and
delivering Board inductions and
Board evaluations, and co-ordinates
post-evaluation action plans,
including risk review and training
requirements for the Board
• Advises on corporate governance
matters
• Is a member of the Executive
Committee as General Counsel
Chief Executive
Ivan Menezes
Chairman
Javier Ferrán
Chief Financial Officer
Lavanya Chandrashekar
• Responsible for the operation, leadership and governance of
• Manages all aspects of the group's
• Develops the group’s strategic direction
for consideration and approval by the
Board
• Implements the strategy agreed by the
Board
the Board
• Ensures all Directors are fully informed of matters and receives
precise, timely and clear information sufficient to make
informed judgements
• Leads the Executive Committee
• Manages the company and the group
• Along with the Chief Financial Officer,
leads discussions with investors
• Is supported in his role by the Executive
• Sets Board agendas and ensures sufficient time is allocated to
ensure effective debate to support sound decision making
• Ensures the effectiveness of the Board
• Engages in discussions with shareholders
• Meets with the Non-Executive Directors independently of the
Committee
Executive Directors
• Is supported by the Finance Committee
and Filings Assurance Committee in the
management of financial reporting of
the company
• Acts as designated Non-Executive Director for workforce
engagement
88
88
Diageo Annual Report 2022
Diageo Annual Report 2022
financial affairs
• Responsible for the management of
the capital structure of the company
• Contributes to the management of
the group's operations
• Along with the Chief Executive, leads
discussions with investors
• Is supported by the Finance
Committee and Filings Assurance
Committee in the management of
the financial affairs and reporting of
the company
• Is a member of the Executive
Committee
Corporate governance report
Enabling our ambition
Corporate governance structure and division of responsibilities
Non-Executive Directors
Melissa Bethell, Valérie
Chapoulaud-Floquet, Sir John
Manzoni, Lady Mendelsohn, Alan
Stewart, Ireena Vittal and Karen
Blackett
The Non-Executive Directors, all of
whom the Board has determined are
independent, experienced and
influential individuals from a diverse
range of industries, backgrounds and
countries.
• Constructively challenge the
Executive Directors
• Develop proposals on strategy
• Scrutinise the performance of
management
• Satisfy themselves on the integrity of
the financial information, controls
and systems of risk management
• Set the levels of remuneration for
Executive Directors and senior
management
• Make recommendations to the
Board concerning appointments to
• Devote such time as is necessary to
the proper performance of their
the Board
duties
A summary of the terms and conditions of
appointment of the Non-Executive Directors is
available at https://www.diageo.com/en/
our-business/corporate-governance.
Nomination
Committee
Audit
Committee
Remuneration
Committee
s
r
e
v
i g ht and rigoro
Board of Directors
u
s c
h
a
l
l
e
n
g
e
ependent o
d
In
Chief Executive has
delegated authority to
these Committees
Leaders h i p
Executive
Committee
Filings
Assurance
Committee
Finance
Committee
Audit & Risk
Committee
Business unit risk
management
Senior Independent Director
Susan Kilsby
• Acts as a sounding board for the
Chairman and serves as an
intermediary for the other Directors
where necessary
• Together with the other Non-
Executive Directors, leads the review
of the performance of the Chairman,
taking into account the views of the
Executive Directors
• Available to shareholders if they
have concerns where contact
through the normal channels has
failed
Company Secretary
Tom Shropshire
• The Board is supported by the
Company Secretary who ensures
information is made available to
Board members in a timely fashion
• Supports the Chairman in setting
Board agendas, designing and
delivering Board inductions and
Board evaluations, and co-ordinates
post-evaluation action plans,
including risk review and training
requirements for the Board
• Advises on corporate governance
matters
• Is a member of the Executive
Committee as General Counsel
• Develops the group’s strategic direction
• Responsible for the operation, leadership and governance of
• Manages all aspects of the group's
Chief Executive
Ivan Menezes
Chairman
Javier Ferrán
Board
Board
for consideration and approval by the
the Board
• Implements the strategy agreed by the
precise, timely and clear information sufficient to make
• Ensures all Directors are fully informed of matters and receives
informed judgements
• Leads the Executive Committee
• Sets Board agendas and ensures sufficient time is allocated to
• Manages the company and the group
ensure effective debate to support sound decision making
• Along with the Chief Financial Officer,
• Ensures the effectiveness of the Board
leads discussions with investors
• Engages in discussions with shareholders
• Is supported in his role by the Executive
• Meets with the Non-Executive Directors independently of the
Committee
Executive Directors
• Is supported by the Finance Committee
• Acts as designated Non-Executive Director for workforce
and Filings Assurance Committee in the
engagement
management of financial reporting of
the company
Chief Financial Officer
Lavanya Chandrashekar
financial affairs
• Responsible for the management of
the capital structure of the company
• Contributes to the management of
the group's operations
• Along with the Chief Executive, leads
discussions with investors
• Is supported by the Finance
Committee and Filings Assurance
Committee in the management of
the financial affairs and reporting of
• Is a member of the Executive
the company
Committee
88
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Diageo Annual Report 2022
Diageo Annual Report 2022
Board of Directors
Composition of the Board
The Board comprises the Non-Executive Chairman, two Executive
Directors, the Senior Independent Director, and seven independent
Non-Executive Directors. The biographies of all Directors are set out in
this Annual Report on pages 84 and 85. During the year, the
composition of the Board has not changed other than for the
appointment of Karen Blackett as an additional Non-Executive Director
with effect from 1 June 2022. With the retirement of Siobhán Moriarty
from the company, Tom Shropshire took over as General Counsel and
Company Secretary on 30 September 2021.
Inclusion and diversity
The Board sees championing inclusion and diversity as one of the key
enablers for achieving Diageo’s ambition. It is also a core principle of
the company’s global Human Rights Policy which applies to all
employees, subsidiaries and third-party contractors and which has been
implemented as part of our Code of Business Conduct programme. Our
objective is to maintain and sustain an inclusive and diverse business,
across all levels, functions and geographies, in order to create a better
working environment and a better performing business. As part of this,
the Board has adopted a written Board Diversity Policy alongside
Diageo’s Code of Business Conduct and associated global policies,
which set out Diageo’s broader commitment to inclusion and diversity.
Diageo strongly supports diversity within its Board of Directors, including
gender, ethnicity, age and professional diversity, as well as diversity of
thought. The Board is comprised of individuals from a diverse range of
skills, industries, backgrounds and nationalities, which enables a broad
evaluation of all matters considered by the Board and contributes to a
culture of collaborative and constructive discussion. The Board’s
objective, as set out in its Diversity Policy, is that it shall include no less
than 40% female representation (with the ultimate goal being parity
between males and females on the Board) and at least one director
from a minority ethnic group. Currently, women make up 64% of the
Board and there are five directors (45%) who self-disclose as being
from minority ethnic groups. Further information can be found in the
‘Our people’ and ‘Champion inclusion and diversity’ sections of ‘Our
strategic priorities’ on pages 18, 28-29. The Board's Diversity Policy is
available at https://www.diageo.com/en/our-business/corporate-
governance/board-diversity-policy.
Outside interests and conflicts
The Board has adopted guidelines for dealing with conflicts of interest,
with directors' outside interests being regularly reviewed and
responsibility for authorising conflicts of interest reserved for the Board.
In the case of a potential conflict, the Nomination Committee considers
the circumstances, appropriate controls and protocols, and makes a
recommendation to the Board. The Board confirmed that it was not
aware of any situations that may or did give rise to conflicts with the
interests of the company, other than those that may arise from Directors’
other appointments as disclosed in their biographies.
Duties of the Board
The Board manages overall control of the company’s affairs with
reference to the formal schedule of matters reserved for the Board for
decision. The schedule was last reviewed in July 2022 and is available
at https://www.diageo.com/en/our-business/corporate-governance.
In order to fulfil their duties, procedures are in place for Directors to seek
both independent advice and the advice and services of the Company
Secretary, who is responsible for advising the Board on all governance
matters. During the year, the Non-Executive Directors met without
management present five times, and also without the Chairman present
twice. The terms of reference of Board Committees are reviewed
regularly, most recently in July 2022, and are available at https://
www.diageo.com/en/our-business/corporate-governance.
G
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N
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Corporate governance requirements
The principal corporate governance rules applying to Diageo (as a UK
company listed on the London Stock Exchange) for the year ended 30
June 2022 are contained in the Code and the UK Financial Conduct
Authority (FCA) Listing Rules, which require us to describe, in our Annual
Report, our corporate governance from two points of view: the first
dealing generally with our application of the Code’s main principles
and the second dealing specifically with non-compliance with any of the
Code’s provisions. The two descriptions together are designed to give
shareholders a picture of governance arrangements in relation to the
Code as a criterion of good practice. A copy of the Code is publicly
available on the website of the Financial Reporting Council (FRC),
www.frc.org.uk. Diageo’s statement as to compliance with the Code
during the year ended 30 June 2022 can be found on page 87. Diageo
must also comply with corporate governance rules contained in the FCA
Disclosure Guidance and Transparency Rules and certain related
provisions in the Companies Act 2006 (the Act). Diageo is also listed on
the Euronext Dublin Exchange, the Euronext Paris Exchange and the
New York Stock Exchange (NYSE), and as such is subject to applicable
rules of those exchanges and jurisdictions. For example, Diageo is
subject to the listing requirements of the NYSE and the rules of the US
Securities and Exchange Commission (SEC), as they apply to foreign
private issuers. Compliance with the provisions of the US Sarbanes-
Oxley Act of 2002 (SOX), as it applies to foreign private issuers, is
continually monitored.
Compliance with US corporate governance rules
Under applicable SEC rules and the NYSE’s corporate governance
rules for listed companies, Diageo must disclose any significant ways in
which its corporate governance practices differ from those followed by
US companies under NYSE listing standards. Diageo believes the
following to be the significant areas in which there are differences
between its corporate governance practices and NYSE corporate
governance rules applicable to US companies. This information is also
provided on the company’s website at www.diageo.com.
• Basis of regulation: UK listed companies are required to include in
their annual report a narrative statement of (i) how they have
applied the principles of the Code and (ii) whether or not they have
complied with the best practice provisions of the Code. NYSE listed
companies must adopt and disclose their corporate governance
guidelines. Certain UK companies are required to include in their
annual report statements as to (i) how directors have complied with
s.172 of the Act, which requires directors to promote the success of
the company for the benefit of the members as a whole, having
regard to the interests of stakeholders and (ii) how directors have
engaged with and taken account of the views of the company’s
workforce and other stakeholder groups. Diageo complied
throughout the year with the best practice provisions of the Code
and the disclosure requirements noted above, other than as
described on page 87.
• Director independence: the Code requires at least half the Board
(excluding the Chairman) to be independent Non-Executive
Directors, as determined by affirmatively concluding that a Director is
independent in character and judgement and determining whether
there are relationships and circumstances which are likely to affect,
or could appear to affect, the Director’s judgement. The Code
requires the Board to state its reasons if it determines that a director
is independent notwithstanding the existence of relationships or
circumstances which may appear relevant to its determination. NYSE
rules require a majority of independent directors, according to the
NYSE’s own ‘brightline’ tests and an affirmative determination by the
Board that the Director has no material relationship with the listed
company. Diageo’s Board has determined that, in its judgement and
without taking into account the NYSE brightline tests, all of the Non-
Executive Directors are independent. As such, currently nine of
Diageo’s eleven directors are independent.
Diageo Annual Report 2022
Diageo Annual Report 2022
89
89
Corporate governance report continued
• Chairman and Chief Executive: the Code requires these roles to be
separate. There is no corresponding requirement for US companies.
Diageo has a separate chairman and chief executive.
• Non-Executive Director meetings: NYSE rules require Non-
Management Directors to meet regularly without management and
independent directors to meet separately at least once a year. The
Code requires Non-Executive Directors to meet without the Chairman
present at least annually to appraise the Chairman’s performance.
During the year, Diageo has complied with these requirements with
independent Non-Executive Directors, including the Chairman,
meeting without the Executive Directors present five times and
independent Non-Executive Directors meeting without the Chairman
or Executive Directors present twice.
• Board committees: Diageo has a number of Board committees that
are similar in purpose and constitution to those required by NYSE
rules. Diageo’s Audit, Remuneration and Nomination Committees
consist entirely of independent Non-Executive Directors. Under NYSE
standards, companies are required to have a nominating/corporate
governance committee, which develops and recommends a set of
corporate governance principles and is composed entirely of
independent directors. The terms of reference for Diageo’s
Nomination Committee, which comply with the Code, do not contain
such a requirement. In accordance with the requirements of the
Code, Diageo has disclosed on page 95 the results and means of its
annual evaluation of the Board, its Committees and the Directors,
and it provides extensive information regarding the Directors’
compensation in the Directors’ remuneration report on pages 106-131.
• Code of ethics: NYSE rules require a Code of Business Conduct and
Code of Ethics to be adopted for directors, officers and employees
and disclosure of any waivers for executive directors or officers.
Diageo has adopted a Code of Business Conduct for all directors,
officers and employees, as well as a Code of Ethics for Senior
Financial Officers in accordance with the requirements of SOX. See
page 102 for further details.
• Compliance certification: NYSE rules require chief executives to
certify to the NYSE their awareness of any NYSE corporate
governance violations. Diageo is exempt from this as a foreign
private issuer but is required to notify the NYSE if any executive
officer becomes aware of any non-compliance with NYSE corporate
governance standards. No such notification was necessary during
the period covered by this report.
Structure and division of responsibilities
The Board is committed to the highest standards of corporate
governance and risk management, which is demonstrated in its
established corporate governance framework, illustrated on page 88.
This includes the three Board Committees (Audit Committee,
Nomination Committee and Remuneration Committee), as well as
management committees which report to the Chief Executive or Chief
Financial Officer (Executive Committee, Finance Committee, Audit &
Risk Committee and Filings Assurance Committee). There is a clear
Annual General Meeting
2021
Javier Ferrán
Ivan Menezes
Lavanya Chandrashekar
Susan Kilsby
Melissa Bethell
Karen Blackett2
Valérie Chapoulaud-Floquet
Sir John Manzoni
Nicola Mendelsohn
Alan Stewart
Ireena Vittal
1. Attended by invitation
2. Appointed to the Board on 1 June 2022
90
90
Diageo Annual Report 2022
Diageo Annual Report 2022
ü
ü
ü
ü
ü
N/A
ü
ü
ü
ü
ü
separation of the roles of the Chairman, the Senior Independent
Director and the Chief Executive which has been clearly established, set
out in writing and approved by the Board. A copy of this is available at
https://www.diageo.com/en/our-business/corporate-governance. No
individual or group dominates the Board’s decision-making processes.
FURTHER DETAILS ON THE BOARD COMMITTEES CAN BE FOUND IN THE
SEPARATE REPORTS FROM EACH COMMITTEE ON PAGES 99-131, AND DETAILS
OF THE EXECUTIVE COMMITTEE CAN BE FOUND ON PAGE 86
Board skills and experience
Having an appropriate mix of experience, expertise, diversity and
independence is essential for Diageo's Board. Such diverse attributes
enable the Board as a whole to provide informed opinions and advice
on strategy and relevant topics, thereby discharging its duty of
oversight. The Board skills matrix helps to identify the experience and
expertise of existing Directors, required skill sets or competencies, and
the strategic requirements of the company.
Key strengths and relevant experience of each Director are set out on
pages 84-85, and a matrix of the Board’s current skills and experience is
set out in the chart below.
Banking and corporate finance
Commercial matters
Consumer products
Corporate governance
Emerging markets
Finance
Food and beverages
General management
Government and public policy
M&A
Media
Sales and marketing
Strategy
Sustainability
Technology
Transaction advisory
Board attendance
Directors’ attendance record at the last AGM, scheduled Board
meetings and Board Committee meetings, for the year ended 30 June
2022 is set out in the table below. Directors are expected to attend all
meetings of the Board and its Committees and the AGM, but if unable
to do so they are encouraged to give their views to the chair of the
meeting in advance. The 2021 AGM was held for the first time as a
combined physical and electronic meeting via a live webcast with all
directors attending either physically or by video link. For Board and
Board Committee meetings, attendance is expressed as the number of
meetings attended out of the number that each Director was eligible to
attend.
Board
(maximum 7)
7/7
7/7
7/7
7/7
7/7
0/0
7/7
7/7
7/7
7/7
6/7
Audit Committee
(maximum 5)
5/51
3/51
5/51
5/5
5/5
0/0
5/5
5/5
4/5
5/5
5/5
Nomination Committee
(maximum 6)
6/6
6/61
0/0
6/6
6/6
0/0
6/6
6/6
6/6
6/6
6/6
Remuneration Committee
(maximum 5)
5/51
5/51
2/21
5/5
5/5
1/1
5/5
5/5
5/5
5/5
5/5
Corporate governance report continued
• Chairman and Chief Executive: the Code requires these roles to be
separation of the roles of the Chairman, the Senior Independent
separate. There is no corresponding requirement for US companies.
Director and the Chief Executive which has been clearly established, set
Diageo has a separate chairman and chief executive.
• Non-Executive Director meetings: NYSE rules require Non-
out in writing and approved by the Board. A copy of this is available at
https://www.diageo.com/en/our-business/corporate-governance. No
Management Directors to meet regularly without management and
individual or group dominates the Board’s decision-making processes.
independent directors to meet separately at least once a year. The
Code requires Non-Executive Directors to meet without the Chairman
present at least annually to appraise the Chairman’s performance.
During the year, Diageo has complied with these requirements with
independent Non-Executive Directors, including the Chairman,
meeting without the Executive Directors present five times and
FURTHER DETAILS ON THE BOARD COMMITTEES CAN BE FOUND IN THE
SEPARATE REPORTS FROM EACH COMMITTEE ON PAGES 99-131, AND DETAILS
OF THE EXECUTIVE COMMITTEE CAN BE FOUND ON PAGE 86
Board skills and experience
Having an appropriate mix of experience, expertise, diversity and
independent Non-Executive Directors meeting without the Chairman
independence is essential for Diageo's Board. Such diverse attributes
or Executive Directors present twice.
enable the Board as a whole to provide informed opinions and advice
• Board committees: Diageo has a number of Board committees that
on strategy and relevant topics, thereby discharging its duty of
are similar in purpose and constitution to those required by NYSE
oversight. The Board skills matrix helps to identify the experience and
rules. Diageo’s Audit, Remuneration and Nomination Committees
expertise of existing Directors, required skill sets or competencies, and
consist entirely of independent Non-Executive Directors. Under NYSE
the strategic requirements of the company.
standards, companies are required to have a nominating/corporate
governance committee, which develops and recommends a set of
corporate governance principles and is composed entirely of
independent directors. The terms of reference for Diageo’s
Key strengths and relevant experience of each Director are set out on
pages 84-85, and a matrix of the Board’s current skills and experience is
set out in the chart below.
Nomination Committee, which comply with the Code, do not contain
Banking and corporate finance
such a requirement. In accordance with the requirements of the
Code, Diageo has disclosed on page 95 the results and means of its
annual evaluation of the Board, its Committees and the Directors,
and it provides extensive information regarding the Directors’
Commercial matters
Consumer products
Corporate governance
Emerging markets
compensation in the Directors’ remuneration report on pages 106-131.
Finance
Food and beverages
General management
Government and public policy
M&A
Media
Sales and marketing
Strategy
Sustainability
Technology
Transaction advisory
Board attendance
• Code of ethics: NYSE rules require a Code of Business Conduct and
Code of Ethics to be adopted for directors, officers and employees
and disclosure of any waivers for executive directors or officers.
Diageo has adopted a Code of Business Conduct for all directors,
officers and employees, as well as a Code of Ethics for Senior
Financial Officers in accordance with the requirements of SOX. See
page 102 for further details.
• Compliance certification: NYSE rules require chief executives to
certify to the NYSE their awareness of any NYSE corporate
governance violations. Diageo is exempt from this as a foreign
private issuer but is required to notify the NYSE if any executive
officer becomes aware of any non-compliance with NYSE corporate
governance standards. No such notification was necessary during
the period covered by this report.
Structure and division of responsibilities
The Board is committed to the highest standards of corporate
governance and risk management, which is demonstrated in its
established corporate governance framework, illustrated on page 88.
This includes the three Board Committees (Audit Committee,
Nomination Committee and Remuneration Committee), as well as
management committees which report to the Chief Executive or Chief
Financial Officer (Executive Committee, Finance Committee, Audit &
Risk Committee and Filings Assurance Committee). There is a clear
Directors’ attendance record at the last AGM, scheduled Board
meetings and Board Committee meetings, for the year ended 30 June
2022 is set out in the table below. Directors are expected to attend all
meetings of the Board and its Committees and the AGM, but if unable
to do so they are encouraged to give their views to the chair of the
meeting in advance. The 2021 AGM was held for the first time as a
combined physical and electronic meeting via a live webcast with all
directors attending either physically or by video link. For Board and
Board Committee meetings, attendance is expressed as the number of
meetings attended out of the number that each Director was eligible to
attend.
Annual General Meeting
2021
Board
(maximum 7)
Audit Committee
Nomination Committee
Remuneration Committee
(maximum 5)
(maximum 6)
(maximum 5)
N/A
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
7/7
7/7
7/7
7/7
7/7
0/0
7/7
7/7
7/7
7/7
6/7
5/51
3/51
5/51
5/5
5/5
0/0
5/5
5/5
4/5
5/5
5/5
6/6
6/61
0/0
6/6
6/6
0/0
6/6
6/6
6/6
6/6
6/6
5/51
5/51
2/21
5/5
5/5
1/1
5/5
5/5
5/5
5/5
5/5
Lavanya Chandrashekar
Javier Ferrán
Ivan Menezes
Susan Kilsby
Melissa Bethell
Karen Blackett2
Valérie Chapoulaud-Floquet
Sir John Manzoni
Nicola Mendelsohn
Alan Stewart
Ireena Vittal
1. Attended by invitation
2. Appointed to the Board on 1 June 2022
90
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Diageo Annual Report 2022
Elections
The Chairman has confirmed that the Non-Executive Directors standing
for election or re-election at this year’s AGM continue to perform
effectively, both individually and collectively as a Board, and that each
Non-Executive Director demonstrates commitment to their roles and
continues to provide constructive challenge, strategic guidance and
offer specialist advice, as well as holding management to account. As
can be seen from the attendance records set out below, directors’
attendance levels have been consistently high throughout the year
ended 30 June 2022.
Board activities
Details of the main areas of focus of the Board and its Committees during the year include those summarised below:
Areas of focus
Strategic
matters
Operational
matters
• Held a two-day Annual Strategy Conference focussing on key strategic matters, including the
digital economy, reserve and luxury portfolios, disruptive consumer trends, ESG, culture and
capabilities
• Regularly reviewed the group’s performance against the strategy
• Received reports on the financial performance of the group as against the annual plan
• Reviewed the group’s tax strategy and policy
• Received regular reports on the macro-economic environment, world events and emerging
trends
• Reviewed strategic topics including the group's beer and scotch whisky portfolios, tequila
supply and resourcing strategy, potential post-pandemic tax and regulatory developments, e-
commerce and digital strategy and the group's strategy in India
• Reviewed and approved the annual funding plan, insurance, banking and capital
expenditure requirements
• Reviewed the impact of global trade developments and disputes
• Regularly reviewed and approved the group’s M&A and business development activities,
reorganisations and various other projects
• Reviewed and approved the group's supply chain activities, including supply footprint and
capital expenditure investments, and various significant procurement, systems and other
contracts
• Reviewed the company’s innovation pipeline
• Reviewed the company’s capital allocation, funding and liquidity positions, including those of
its pension schemes, and approved interim and final dividends
• Reviewed and approved the recommencement of the company’s share buyback programme
• Acting through the Nomination Committee, reviewed the company’s succession planning and
talent strategy
ESG matters
• Carried out an investor perception survey and report to understand investor sentiment
• Received reports on workforce engagement over the year
• Received regular investor reports
• During each quarter, received an update on ESG matters and progress towards 'Society
2030: Spirit of Progress' targets
• Completed actions identified following the previous evaluation of the Board's performance
and carried out an internal evaluation of the Board’s performance
• Approved the appointment of a new Non-Executive Director
• Reviewed schedule of matters reserved for the Board and terms of reference of its committees
Assurance
and risk
management
• Received reports in relation to material legal matters, including disputes, regulatory and
governance developments, and areas of legal or regulatory risk
• On the recommendation of the Audit Committee, approved the company’s risk footprint,
including reviewing and updating the principal risks, including in relation to supply chain
disruption
• On the recommendation of the Audit Committee, approved the company’s filings, financial
and non-financial reporting including interim and preliminary results announcements, US
filings and Annual Report
Key
Strategic priorities
Strategic outcomes
Stakeholders
1
2
3
4
5
6
Sustain quality growth
EG
Efficient growth
Embed everyday efficiency
CVC
Consistent value creation
Invest smartly
Promote positive drinking
CT
EP
Credibility and trust
Engaged people
Champion inclusion and diversity
Pioneer grain-to-glass sustainability
People
Consumers
Customers
Suppliers
Communities
Investors
Governments and regulators
G
O
V
E
R
N
A
N
C
E
Strategic
priority
Strategic
outcome
Stakeholders
1
2
3
6
1
2
3
1
4
5
6
2
3
6
EG
CVC
EG
CVC
EP
CVC
CT
EP
EG
CVC
CT
Diageo Annual Report 2022
Diageo Annual Report 2022
91
91
These direct engagements have enabled our Non-Executive Directors
to have candid and constructive discussions with employees, to
understand better their views and experiences of working at Diageo,
including what works well and what needs improvement. Common
themes and feedback from these engagement sessions are reported
by the Chairman and other participating Directors to the rest of the
Board. For example, the need to collaborate and further simplify
internal decision-making processes across the business, in order to
enable more pace and agility, had been identified through these
engagements. Following this feedback, management encouraged the
formation of cross-functional ’sprint teams’ to identify, focus on and
swiftly address specific risks and opportunities for the business.
Diageo’s Workforce engagement statement is set out on page 96.
Consumers
Understanding our consumers is critical for the long-term
growth of our business. Consumer motivations, attitudes
and behaviour form the basis of our brand marketing
and innovation. We want our products to be enjoyed
responsibly and for consumers to 'drink better, not more'.
What matters to them
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 and societal credentials; Price
How the Board engages and responds
The Board is aware that the company’s continued success is
dependent on having a deep understanding of our consumers, their
behaviours and motivations and on the company’s ability to respond to
those consumer insights by ensuring that it has an attractive portfolio of
products across multiple categories, channels, markets and price
points. The Board regularly reviews emerging consumer trends at the
Annual Strategy Conference, during which the Board receives
presentations from senior executives on emerging trends, the risks and
opportunities resulting from those trends and how the company is
responding to them. At this year’s Annual Strategy Conference held in
May 2022, the Board reviewed in particular the digital economy,
Reserve and luxury brand portfolios, disruptive consumer trends, and
the importance of ESG to consumers. At other meetings during the
year, the Board has reviewed the group’s innovation pipeline, its e-
commerce strategy and digital capabilities, new consumer attitudes
and public policy priorities as economies recover from the pandemic.
The Board has also reviewed the potential impact of inflationary
pressures on consumer behaviour and on the ability of the company's
supply chain to respond to evolving consumer trends. The Board has
consciously made capital allocation and strategic decisions based on
these consumer insights, investing in additional production capacity in
growing categories such as tequila, consumer experience centres,
including the Guinness microbrewery and culture hub in London, and
actively managing the group's portfolio through acquisition and
divestment.
Corporate governance report continued
Stakeholder engagement
We aim to maintain open and positive dialogue
with all our stakeholders, considering their key
interests in our decision-making and
communicating with them on a regular basis.
This dialogue helps us build trust and respect
and make choices as a business that help shape
the role we play in society.
The development of strong and positive relationships between Diageo
and its external stakeholders is an intrinsic part of our purpose and
culture. Our stakeholders include not only business partners such as
suppliers and customers, our people and workforce, but also
government, consumers and the wider communities in which we
operate. As noted in the company’s statement on Section 172 of the
Companies Act 2006 set out on page 7, in making their decisions and
in discharging their duties to promote the success of the company, the
Directors must have regard to the interests of its stakeholders. We have
summarised below why our stakeholders are important to us, what their
interests are and how the Board and company engages and responds.
How stakeholder engagement informs our
decision-making
Our people
Our people are at the core of our business. We aim to
build a trusting, respectful and inclusive culture where our
people feel engaged and fulfilled. We want our people
to feel that their human rights are respected and that
they are treated with dignity at work.
What matters to them
Prioritisation of health, safety and wellbeing; Learning and
development opportunities; Purpose, culture and benefits; Contributing
to the growth of our brands and performance; Promotion of inclusion
and diversity; Sustainability
How the Board engages and responds
The Board maintains an active dialogue with Diageo’s employees and
wider workforce, including contractors and temporary staff. As travel
restrictions were lifted during the year, Directors were able to resume
travel and site tours including visits to the group’s offices in London, its
consumer experience centres at Johnnie Walker Princes Street in
Edinburgh and at the Guinness Storehouse in Dublin, and its
production sites, distilleries, maturation facilities and packaging plants
in Scotland and its brewery and distillation sites in Ireland. These visits
enable the Board to engage directly with local management and other
employees during presentations, site and trade visits, as well as at
social events. Indirect engagement with employees also takes place
through works councils, employee and workforce forums, community
groups, pulse surveys and town hall meetings, most of which have
been conducted virtually this year. The global survey of employees
known as Your Voice is carried out annually and its findings are
reviewed by the Board. This year our Non-Executive Directors have
taken part in the Board's engagement programme, engaging directly
with a wide range of employees in different markets, supporting the
Chairman in his role as designated non-executive director for workforce
engagement.
92
92
Diageo Annual Report 2022
Diageo Annual Report 2022
These direct engagements have enabled our Non-Executive Directors
to have candid and constructive discussions with employees, to
understand better their views and experiences of working at Diageo,
including what works well and what needs improvement. Common
themes and feedback from these engagement sessions are reported
by the Chairman and other participating Directors to the rest of the
Board. For example, the need to collaborate and further simplify
internal decision-making processes across the business, in order to
enable more pace and agility, had been identified through these
engagements. Following this feedback, management encouraged the
formation of cross-functional ’sprint teams’ to identify, focus on and
swiftly address specific risks and opportunities for the business.
Diageo’s Workforce engagement statement is set out on page 96.
Consumers
Understanding our consumers is critical for the long-term
growth of our business. Consumer motivations, attitudes
and behaviour form the basis of our brand marketing
and innovation. We want our products to be enjoyed
responsibly and for consumers to 'drink better, not more'.
What matters to them
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 and societal credentials; Price
How the Board engages and responds
The Board is aware that the company’s continued success is
dependent on having a deep understanding of our consumers, their
behaviours and motivations and on the company’s ability to respond to
those consumer insights by ensuring that it has an attractive portfolio of
products across multiple categories, channels, markets and price
points. The Board regularly reviews emerging consumer trends at the
Annual Strategy Conference, during which the Board receives
presentations from senior executives on emerging trends, the risks and
opportunities resulting from those trends and how the company is
responding to them. At this year’s Annual Strategy Conference held in
May 2022, the Board reviewed in particular the digital economy,
Reserve and luxury brand portfolios, disruptive consumer trends, and
the importance of ESG to consumers. At other meetings during the
year, the Board has reviewed the group’s innovation pipeline, its e-
commerce strategy and digital capabilities, new consumer attitudes
and public policy priorities as economies recover from the pandemic.
The Board has also reviewed the potential impact of inflationary
pressures on consumer behaviour and on the ability of the company's
supply chain to respond to evolving consumer trends. The Board has
consciously made capital allocation and strategic decisions based on
these consumer insights, investing in additional production capacity in
growing categories such as tequila, consumer experience centres,
including the Guinness microbrewery and culture hub in London, and
actively managing the group's portfolio through acquisition and
divestment.
Corporate governance report continued
Stakeholder engagement
We aim to maintain open and positive dialogue
with all our stakeholders, considering their key
interests in our decision-making and
communicating with them on a regular basis.
This dialogue helps us build trust and respect
and make choices as a business that help shape
the role we play in society.
The development of strong and positive relationships between Diageo
and its external stakeholders is an intrinsic part of our purpose and
culture. Our stakeholders include not only business partners such as
suppliers and customers, our people and workforce, but also
government, consumers and the wider communities in which we
operate. As noted in the company’s statement on Section 172 of the
Companies Act 2006 set out on page 7, in making their decisions and
in discharging their duties to promote the success of the company, the
Directors must have regard to the interests of its stakeholders. We have
summarised below why our stakeholders are important to us, what their
interests are and how the Board and company engages and responds.
How stakeholder engagement informs our
decision-making
Our people
Our people are at the core of our business. We aim to
build a trusting, respectful and inclusive culture where our
people feel engaged and fulfilled. We want our people
to feel that their human rights are respected and that
they are treated with dignity at work.
What matters to them
Prioritisation of health, safety and wellbeing; Learning and
development opportunities; Purpose, culture and benefits; Contributing
to the growth of our brands and performance; Promotion of inclusion
and diversity; Sustainability
How the Board engages and responds
The Board maintains an active dialogue with Diageo’s employees and
wider workforce, including contractors and temporary staff. As travel
restrictions were lifted during the year, Directors were able to resume
travel and site tours including visits to the group’s offices in London, its
consumer experience centres at Johnnie Walker Princes Street in
Edinburgh and at the Guinness Storehouse in Dublin, and its
production sites, distilleries, maturation facilities and packaging plants
in Scotland and its brewery and distillation sites in Ireland. These visits
enable the Board to engage directly with local management and other
employees during presentations, site and trade visits, as well as at
social events. Indirect engagement with employees also takes place
through works councils, employee and workforce forums, community
groups, pulse surveys and town hall meetings, most of which have
been conducted virtually this year. The global survey of employees
known as Your Voice is carried out annually and its findings are
reviewed by the Board. This year our Non-Executive Directors have
taken part in the Board's engagement programme, engaging directly
with a wide range of employees in different markets, supporting the
Chairman in his role as designated non-executive director for workforce
engagement.
92
92
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Diageo Annual Report 2022
Customers
We work with a wide range of customers, big and small,
on-trade and off-trade, retailers, wholesalers and
distributors, digital and e-commerce. We want to nurture
mutually beneficial relationships to deliver joint value and
great consumer experiences.
What matters to them
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; Joint
risk assessment and mitigation; Sustainability and societal credentials
How the Board engages and responds
Maintaining a broad portfolio with consumer offerings at a variety of
price points and categories is also a key priority for customers, as it is
for consumers and therefore for Diageo. The Board regularly reviews
both innovation and inorganic opportunities to enhance the company's
portfolio and to ensure that it has sufficient breadth and depth in its
portfolio to meet consumer demand. During the year, the Board has
continued to shape the group's portfolio of brands through disposals,
including of brands such as Picon sold in May 2022 and acquisitions of
brands such as the fast growing super-premium flavoured tequila
brand 21Seeds. In addition to inorganic opportunities, during the year
the Board has approved investment in new research and development
facilities in Shanghai to further our product innovation capabilities,
using insights into consumer behaviour and shopper trends to enable
the development of new products which appeal to Chinese consumers
and enhance our portfolio offering for local customers.
Suppliers
Our suppliers, service providers and agencies are experts
in the goods and services we need to create and market
our brands. We collaborate with them to deliver high
quality products, marketed responsibly, and to improve
our collective impact, ensure sustainable supply chains
and make positive contributions to society.
What matters to them
Strong, mutually beneficial partnerships; Strategic alignment and
growth opportunities; Fair contract and payment terms; Collaboration
to realise innovation; Consistent performance measures; Joint risk
assessment and mitigation; Sustainability and societal credentials
How the Board engages and responds
Ensuring resilient and robust supply chains has been a priority for the
Board during the year. The Board has reviewed the group's supply
footprints in key markets including North America with the aim of
ensuring resilience and flexibility in its supply chain, responding to
climate change risk and reducing its environmental impact as well as
responding to emerging consumer trends in relation to convenience
and the 'at home' occasion. The Board has also reviewed and
approved a number of significant procurement agreements over the
year, diversifying the sourcing of certain key raw materials and
components such as glass bottles and cans, in order to procure
sufficient production materials to meet projected consumer demand
over a number of years. The Board considers that it is important that
the group remains a trusted partner for suppliers, with the relationship
enhanced through fair contract and payment terms, compliance with
Diageo’s ‘Partnering with Suppliers Standard’, working collaboratively
to mitigate our impact on the environment through shared best
practice and learnings in respect of ESG commitments such as our
'Society 2030: Spirit of Progress' goals.
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Principal Board decision - Investing in
tequila to support long-term growth
Over the past few years, tequila has been one of the fastest
growing spirits categories with Diageo’s organic net sales having
grown 25% in F20, 79% in F21, and 55% in F22, through brands
such as Casamigos, Don Julio and DeLeón. Continued growth is
expected in the tequila category as a result of strong demand
from customers and consumers, especially in North America.
Since tequila is produced from agave plants grown only in the
Jalisco region in Mexico, usually with a maturity of six or more
years old, securing availability of adequate volumes of high
quality raw materials is of critical importance to ensure continued
supply to meet the demands of consumers and our customers.
The supply of agave is also largely dependent on a large
number of small-scale growers with limited infrastructure and
capability to supply large volumes of raw materials, resulting in a
volatile commodity market. In addition, while Diageo had
existing distillation, warehousing and maturation facilities at El
Charcón in Atotonilco El Alto, Jalisco, these were insufficient to
meet forecast volumes over the long-term. Recognising the need
for both agility in securing adequate raw materials in the short-
term and for strategic investment in the company’s production
capacity over the long-term, in April 2021 the Board approved a
delegation of authority to a dedicated tequila supply council to
make purchases of agave and liquid within certain parameters
during the course of fiscal 22 while also authorising management
to review various options to expand its production footprint in
Jalisco including through acquisition or expansion. At
subsequent Board meetings throughout the year, the Board
monitored the levels of investment incurred on agave and liquid
under that delegated authority while also approving plans to
expand its manufacturing footprint in Mexico through an
investment of more than $500 million. The Board also reviewed
management’s supply chain and procurement strategy for
tequila, which took into consideration management’s updated
assessment as to the long-term volume growth of the category,
the company’s approach to agave procurement and its capital
investment requirements in direct operations and contracted
supply. There were multiple factors which the Board took into
consideration when making these decisions, including potential
impacts on different stakeholder groups as required under s.172
of the Companies Act, for example:
• the potential demands of consumers and customers over a 10-
year timescale, including under different growth scenarios, and
the need for robust forecasts and modelling in demand and
growth over such an extended period;
• the potential for surplus agave availability over that same
period, given planting and growth cycles, and any consequent
impact on pricing;
• implications of the expansion of existing production facilities or
the construction of new facilities on the ability of the company
to achieve its 'Society 2030: Spirit of Progress' targets, including
incorporating sustainability by design into capital expenditure
planning through, for example, investment in renewable
energy, reduction of carbon emissions and efficiencies in water
usage;
• assessing and balancing the impact of expanding our supply
footprint on the local environment and communities including
responsible water use in areas suffering from water-stress and
the potential for increased employment and development
opportunities in the local community, including through
initiatives such as Hablemos de Emprendedoras, a skills
programme for female entrepreneurs in Jalisco; and
• the ability of third party suppliers and contractors to meet
Diageo's requirements, not only as to quality, volume, price
and standards, but also as to compliance with our Partnering
with Suppliers policy setting minimum standards in areas such
as human rights, health and safety, inclusion and diversity, and
environmental sustainability.
Diageo Annual Report 2022
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Corporate governance report continued
Communities
Governments and regulators
We aim to create long-term value for the communities in
which we live, work, source and sell. By ensuring we
empower people, increase their access to opportunities
and champion inclusion and diversity, we can help build
thriving communities and strengthen our business.
The regulatory environment is critical to the success of
our business. We share information and perspectives
with those who influence policy and regulation to enable
them to understand our views on areas that can impact
public health and our business.
What matters to them
Impact of our operations on the local economy; Access to skills
development, employment and supplier opportunities; Inclusion,
diversity and tackling inequality in all forms; Responsible use of natural
resources and sustainability; Transparency and engagement
How the Board engages and responds
The Board considers the maintenance of close and supportive
relationships with the communities in which Diageo operates to be of
particular importance to the company, especially given the impact of
inflation and economic instability on communities recovering from the
impact of the pandemic. During the year, the Board has regularly
reviewed progress towards the company's 'Society 2030: Spirit of
Progress' goals including in relation to those which impact on
communities and broader society. The Board has also supervised the
second year of the 'Raising the Bar' programme, Diageo's $100 million
fund supporting the recovery of the on-trade and hospitality industry
which concluded at the end of the financial year.
Investors
We want to enable equity and debt investors to have an
in-depth understanding of our strategy, our operational,
financial and holistic performance, so that they can more
accurately assess the value of our shares and the
opportunities and risks of investing in our business.
What matters to them
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
How the Board engages and responds
The Chief Executive and Chief Financial Officer are in regular contact
with investors with the assistance of the investor relations department,
and as such engage directly and most frequently with investors using a
variety of different engagement methods. For example, in November
2021 the Chief Executive, Chief Financial Officer and other senior
executives hosted a Capital Markets Day with investors which included
sessions on brand building, supply chain, long-term sustainable growth
and culture. The Board is also provided with monthly investor relations
reports, which includes coverage of the company by sell-side analysts.
The Board ensures that all Directors develop an understanding of the
views of major institutional shareholders through a periodic
independent survey of shareholder opinion, which was carried out this
year. In addition, major shareholders are invited to raise any company
matters of interest to them at meetings with the Chairman of the Board,
the Chairman of the Audit Committee, the Chairman of the
Remuneration Committee or any other Director. Shareholders are
invited to write to the Company Secretary, Chairman or any other
Director and express their views on any issues of concern at any time,
including by way of email to a dedicated address for the Company
Secretary and his team. The AGM also provides a regular opportunity
for shareholders to put their questions in person and to hear other
shareholders put their questions to the Board. The 2021 AGM was held
as the company's first 'hybrid' meeting with shareholders attending both
physically, as in traditional AGMs, or by remote or virtual means, while
still being able to engage directly with the Board, viewing the meeting
online, asking questions and voting on resolutions through a portal.
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What matters to them
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
How the Board engages and responds
The Board engages indirectly with government, regulators and
policymakers through regular reports from the Chief Executive as well
as periodic updates from management. In particular, the Board has
received regular briefings during the year on the macro-economic
environment, world events and emerging geopolitical trends.
Management provided the Board with an analysis of potential
developments in regulation and tax policy as countries recover from
the pandemic. The Board ensures that the company works closely with
governmental and non-governmental bodies in relation to policy as to
positive drinking, responsible advertising of alcoholic products, and
education to enable consumers to make better choices about alcohol.
Wider stakeholder engagement
Fiscal 22 has been another year of volatility and instability
resulting from supply chain disruption, inflationary pressures
and dislocation. Despite this instability, the Board and executive
management have continued to engage with the company’s
stakeholders and respond to their needs in a variety of ways,
including:
• The company’s $100 million global ‘Raising the Bar’
programme, in its second year during fiscal 22, continued to
support customers, pubs and bars recover from hardship
resulting from the pandemic and enabling them to serve their
consumers. The programme allows us to respond with
flexibility to address specific issues faced in different markets;
for example, in India this year the fund was used to support
the vaccination of bar staff.
• With travel restrictions lifting in a number of markets, the
Board has resumed physical meetings and visits to Diageo
offices and production sites, enabling face-to-face
engagement sessions with our workforce again. See page 96
for more details of our workforce engagement programme
this year.
• Senior management travelled to meet and engage with key
North American customers in New York and distributors from
Asia-Pacific in Singapore.
• Executive directors and senior management hosted more
physical meetings with investors and shareholders during the
year, including in London and New York, while also
continuing with virtual meetings where appropriate given the
circumstances, including for example the Capital Markets
Day in November 2021.
Further information on our stakeholders, what is important to
them and how the Board engages and responds to them can
be found on pages 92-94. A case study summarising how key
stakeholder considerations were taken into account by the
Board in relation to one of its principal decisions during fiscal 22
is set out on page 93.
Corporate governance report continued
Communities
Governments and regulators
We aim to create long-term value for the communities in
which we live, work, source and sell. By ensuring we
empower people, increase their access to opportunities
and champion inclusion and diversity, we can help build
thriving communities and strengthen our business.
The regulatory environment is critical to the success of
our business. We share information and perspectives
with those who influence policy and regulation to enable
them to understand our views on areas that can impact
public health and our business.
What matters to them
What matters to them
Impact of our operations on the local economy; Access to skills
Contribution to national and local economic, development and public
development, employment and supplier opportunities; Inclusion,
health priorities; International trade, excise, regulation and tackling illicit
diversity and tackling inequality in all forms; Responsible use of natural
trade; Tackling harmful drinking and the impact of responsible drinking
resources and sustainability; Transparency and engagement
How the Board engages and responds
The Board considers the maintenance of close and supportive
relationships with the communities in which Diageo operates to be of
initiatives; Climate change and wider sustainability agenda, including
carbon reduction, human rights, environmental impacts, sustainable
agriculture and support for communities; Corporate behaviour
How the Board engages and responds
particular importance to the company, especially given the impact of
The Board engages indirectly with government, regulators and
inflation and economic instability on communities recovering from the
policymakers through regular reports from the Chief Executive as well
impact of the pandemic. During the year, the Board has regularly
as periodic updates from management. In particular, the Board has
reviewed progress towards the company's 'Society 2030: Spirit of
received regular briefings during the year on the macro-economic
Progress' goals including in relation to those which impact on
environment, world events and emerging geopolitical trends.
communities and broader society. The Board has also supervised the
Management provided the Board with an analysis of potential
second year of the 'Raising the Bar' programme, Diageo's $100 million
developments in regulation and tax policy as countries recover from
fund supporting the recovery of the on-trade and hospitality industry
the pandemic. The Board ensures that the company works closely with
which concluded at the end of the financial year.
Investors
governmental and non-governmental bodies in relation to policy as to
positive drinking, responsible advertising of alcoholic products, and
education to enable consumers to make better choices about alcohol.
We want to enable equity and debt investors to have an
in-depth understanding of our strategy, our operational,
financial and holistic performance, so that they can more
accurately assess the value of our shares and the
opportunities and risks of investing in our business.
What matters to them
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
How the Board engages and responds
The Chief Executive and Chief Financial Officer are in regular contact
with investors with the assistance of the investor relations department,
and as such engage directly and most frequently with investors using a
variety of different engagement methods. For example, in November
2021 the Chief Executive, Chief Financial Officer and other senior
executives hosted a Capital Markets Day with investors which included
sessions on brand building, supply chain, long-term sustainable growth
and culture. The Board is also provided with monthly investor relations
reports, which includes coverage of the company by sell-side analysts.
The Board ensures that all Directors develop an understanding of the
views of major institutional shareholders through a periodic
independent survey of shareholder opinion, which was carried out this
year. In addition, major shareholders are invited to raise any company
matters of interest to them at meetings with the Chairman of the Board,
the Chairman of the Audit Committee, the Chairman of the
Remuneration Committee or any other Director. Shareholders are
invited to write to the Company Secretary, Chairman or any other
Director and express their views on any issues of concern at any time,
including by way of email to a dedicated address for the Company
Secretary and his team. The AGM also provides a regular opportunity
for shareholders to put their questions in person and to hear other
shareholders put their questions to the Board. The 2021 AGM was held
as the company's first 'hybrid' meeting with shareholders attending both
physically, as in traditional AGMs, or by remote or virtual means, while
still being able to engage directly with the Board, viewing the meeting
online, asking questions and voting on resolutions through a portal.
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Wider stakeholder engagement
Fiscal 22 has been another year of volatility and instability
resulting from supply chain disruption, inflationary pressures
and dislocation. Despite this instability, the Board and executive
management have continued to engage with the company’s
stakeholders and respond to their needs in a variety of ways,
including:
• The company’s $100 million global ‘Raising the Bar’
programme, in its second year during fiscal 22, continued to
support customers, pubs and bars recover from hardship
resulting from the pandemic and enabling them to serve their
consumers. The programme allows us to respond with
flexibility to address specific issues faced in different markets;
for example, in India this year the fund was used to support
the vaccination of bar staff.
• With travel restrictions lifting in a number of markets, the
Board has resumed physical meetings and visits to Diageo
offices and production sites, enabling face-to-face
engagement sessions with our workforce again. See page 96
for more details of our workforce engagement programme
this year.
• Senior management travelled to meet and engage with key
North American customers in New York and distributors from
Asia-Pacific in Singapore.
• Executive directors and senior management hosted more
physical meetings with investors and shareholders during the
year, including in London and New York, while also
continuing with virtual meetings where appropriate given the
circumstances, including for example the Capital Markets
Day in November 2021.
Further information on our stakeholders, what is important to
them and how the Board engages and responds to them can
be found on pages 92-94. A case study summarising how key
stakeholder considerations were taken into account by the
Board in relation to one of its principal decisions during fiscal 22
is set out on page 93.
Executive direction and control
Executive Committee
The Executive Committee, appointed and chaired by the Chief
Executive, supports him in discharging his responsibility for
implementing the strategy agreed by the Board and for managing the
company and the group. It consists of the individuals responsible for
the key operational and functional components of the business: North
America, Europe and Turkey, Africa, Latin America and Caribbean,
Asia Pacific, Supply Chain and Procurement and Corporate. The
Executive Committee focuses its time and agenda to align with the
Performance Ambition and how to achieve Diageo’s financial and non-
financial performance objectives. Performance metrics have been
developed to measure progress. There is also focus on the company’s
reputation. In support, monthly performance delivery calls, involving the
managing directors of each market, focus on current performance.
Committees appointed by the Chief Executive and intended to have an
ongoing remit, including the Audit & Risk Committee, Finance
Committee and Filings Assurance Committee, are shown (with their
remits) at https://www.diageo.com/en/our-business/corporate
governance.
Performance evaluation
With the assistance of the Company Secretary, the evaluation of the
Board's effectiveness, including the effectiveness of the Board's
Committees and directors, was undertaken from December 2021 to
January 2022. The purpose of the evaluation was to review and
evaluate how the Board and its Committees operate as measured
against current best practice corporate governance principles framed
by reference to Principle L and Provisions 21, 22 and 23 of the Code.
Board evaluation
Main conclusions
Board composition, membership and appointment processes
• Recent appointments of directors have ensured appropriate quality,
experience, background and diversity on the Board
December 2021 - Internal evaluation process
This year's evaluation process was performed internally, comprising of
a questionnaire sub-divided into five sections focussing respectively on
Board composition and processes, Board effectiveness, behaviours and
performance, individual Directors’ performance and Committees’
performance. Responses to questions were sent to the Chairman of the
Board and responses on the effectiveness of the Committees were also
submitted to the respective Committee Chairmen. Following receipt of
responses on the evaluation on the Chairman, the Senior Independent
Director held a meeting with the Directors without the Chairman
present to provide feedback in relation to the Chairman, consistent with
the requirements of the Code. The results of the evaluation process
were reviewed by the Board at its meeting in January 2022 at which
various actions were agreed to be taken. It is the Board’s intention to
continue to review annually its performance and that of its Committees
and individual Directors, with such evaluation being carried out by an
external facilitator every three years. The evaluation to be undertaken
in 2023 will be undertaken with the assistance of an external facilitator.
The Chairman has confirmed that the Non-Executive Directors standing
for re-election at this year’s AGM continue to perform effectively, both
individually and collectively as a Board, and that each demonstrates
commitment to their roles.
The main conclusions and key areas for focus highlighted by the
December 2021 evaluation are set out in the table below.
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Key actions for focus
• Review succession planning and pipeline at executive and senior
management levels
• Strong satisfaction that the Board is of sufficient size, balance, skills
• Continue to review the balance of skills, experience and knowledge
and diversity to discharge its duties
of the Board
• Continue to review and enhance induction programme for new
directors
Board administration, meetings, agenda and provision of information
• Strong satisfaction for the layout and format of Board papers
• Ensure adequate time is allocated for presentations, deep-dives and
• Continue to build Board’s awareness of analysts’ views of the industry
by circulating key reports periodically
discussion during meetings
• Enhance tracking and reporting of key issues and actions taken
• Ensure appropriate topics for consideration at meetings
during the year
• Continue to improve Board papers and minutes processes
Board, Committee and Directors’ effectiveness and performance
• Discussions amongst Directors are transparent, supportive and
• Focus on forecast volumes in investment and capital expenditure
challenging
proposals
• Support for private sessions attended by Non-Executive Directors
• Board has sufficient visibility and clarity as to wider stakeholder
interests in its decision-making processes
• Increase focus on ESG matters to enable more detailed reviews on
topics, including the 'Society 2030: Spirit of Progress' ambition,
throughout the year
Culture, values and purpose
• Satisfaction with how values and expected behaviours have been
communicated within the company and externally to stakeholders
• Strategy of the company is consistent with its purpose, values and
ambition
• Demonstration of ethical leadership and display of the behaviours
expected
• Strong sense of understanding of the 'Society 2030: Spirit of Progress'
ambition, its five pillars, targets and progress
• Use ‘Pulse’ surveys to initiate sessions on culture from employees and
other stakeholders’ perceptions
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Corporate governance report continued
Workforce engagement statement
At Diageo we believe that our people are critical to our company’s
success. In support of this, we place significant focus on sustaining high
levels of employee engagement, and creating an environment where
our people feel listened to.
To help us understand employees’ experience of working at Diageo,
we listen to their views using both formal and informal channels.
• Some colleagues highlighted that we could do more to strengthen
our culture of being bold and experimenting, for example by
becoming better at discussing failures as well as successes.
• Colleagues mentioned that they feel positive towards the efforts
made to simplify systems, tools and processes. They also highlighted
that there are further opportunities to simplify as part of Diageo’s
Radical Liberation initiative.
Diageo’s workforce engagement initiative is an important formal
channel for our Chairman and Non-Executive Directors to gather
employee insights and feedback when it comes to Diageo’s culture,
strategy and ways of working. It is also an opportunity for employees to
have direct access to members of the Board.
• Some colleagues highlighted positive changes in ways of working
since the outbreak of the pandemic, including increased
collaboration, flexibility and cross-functional working. However, it
was also raised by some that workloads have felt increasingly
demanding in the past two years.
On 1 July 2019, the Chairman was appointed the designated Non-
Executive Director for workforce engagement on behalf of the Board,
with sessions taking place throughout the year.
In line with this, in fiscal 22 the Chairman and our Non-Executive
Directors met with 1,435 Diageo employees in 16 meetings, representing
different levels, functions, and regions.
Most of these open and constructive sessions have been held virtually,
however following the easing of Covid-19 travel restrictions in many
parts of the world, during the second half of the fiscal year, the
Chairman was also able to conduct four of these in person.
Sessions have been highly engaging and the Chairman, as well as our
Non-Executive Directors, have valued the conversations which have
highlighted many of the strong positive aspects of Diageo’s culture.
The themes emerging from these workforce engagement discussions
are:
• Diageo’s advantaged culture was called out as a strong positive -
and a source of pride - in a number of sessions, with inclusion and
diversity, global brands and trust in leadership called out as key
reasons.
• Diageo’s leadership in response to Covid-19 and the sense of pride
that this has generated amongst colleagues was highlighted in
several sessions.
• As a business we are doing more to give colleagues opportunities to
work cross-functionally, something that they would like to see
continue. There is also appetite for further exposure to global job
opportunities.
• Our focus on 'Society 2030: Spirit of Progress' is seen as a positive.
There is pride in how this not only enhances our reputation, but also
how it provides Diageo with a platform to further engage with, and
positively influence stakeholders in this space.
• It was acknowledged that Covid-19 has accelerated the focus on
digital, data and e-commerce agendas within Diageo. There is a
desire for the company to lead the way in this area in order to drive
growth and meet our consumers’ and customers’ changing needs.
• Diageo’s drive for innovation was highlighted as a key strength in a
number of markets and functions, with a desire to continue to do
more.
The insights gathered from the workforce engagement sessions are
reviewed and discussed periodically at Board meetings, something that
helps to inform key decisions. This year, insights were also discussed as
part of a culture session during the Annual Strategy Conference in
May.
Insights from the workforce engagement sessions and other forms of
engagement have helped ensure we listen and respond to the
perspectives of our employees and identify specific areas to further
enhance our employee experience.
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Corporate governance report continued
Workforce engagement statement
At Diageo we believe that our people are critical to our company’s
success. In support of this, we place significant focus on sustaining high
levels of employee engagement, and creating an environment where
our people feel listened to.
To help us understand employees’ experience of working at Diageo,
we listen to their views using both formal and informal channels.
• Some colleagues highlighted that we could do more to strengthen
our culture of being bold and experimenting, for example by
becoming better at discussing failures as well as successes.
• Colleagues mentioned that they feel positive towards the efforts
made to simplify systems, tools and processes. They also highlighted
that there are further opportunities to simplify as part of Diageo’s
Radical Liberation initiative.
Diageo’s workforce engagement initiative is an important formal
channel for our Chairman and Non-Executive Directors to gather
employee insights and feedback when it comes to Diageo’s culture,
strategy and ways of working. It is also an opportunity for employees to
• Some colleagues highlighted positive changes in ways of working
since the outbreak of the pandemic, including increased
collaboration, flexibility and cross-functional working. However, it
was also raised by some that workloads have felt increasingly
have direct access to members of the Board.
demanding in the past two years.
On 1 July 2019, the Chairman was appointed the designated Non-
Executive Director for workforce engagement on behalf of the Board,
with sessions taking place throughout the year.
In line with this, in fiscal 22 the Chairman and our Non-Executive
Directors met with 1,435 Diageo employees in 16 meetings, representing
different levels, functions, and regions.
Most of these open and constructive sessions have been held virtually,
however following the easing of Covid-19 travel restrictions in many
parts of the world, during the second half of the fiscal year, the
Chairman was also able to conduct four of these in person.
Sessions have been highly engaging and the Chairman, as well as our
Non-Executive Directors, have valued the conversations which have
highlighted many of the strong positive aspects of Diageo’s culture.
The themes emerging from these workforce engagement discussions
are:
• Diageo’s advantaged culture was called out as a strong positive -
and a source of pride - in a number of sessions, with inclusion and
diversity, global brands and trust in leadership called out as key
reasons.
several sessions.
• Diageo’s leadership in response to Covid-19 and the sense of pride
that this has generated amongst colleagues was highlighted in
• As a business we are doing more to give colleagues opportunities to
work cross-functionally, something that they would like to see
continue. There is also appetite for further exposure to global job
opportunities.
• Our focus on 'Society 2030: Spirit of Progress' is seen as a positive.
There is pride in how this not only enhances our reputation, but also
how it provides Diageo with a platform to further engage with, and
positively influence stakeholders in this space.
• It was acknowledged that Covid-19 has accelerated the focus on
digital, data and e-commerce agendas within Diageo. There is a
desire for the company to lead the way in this area in order to drive
growth and meet our consumers’ and customers’ changing needs.
• Diageo’s drive for innovation was highlighted as a key strength in a
number of markets and functions, with a desire to continue to do
more.
May.
The insights gathered from the workforce engagement sessions are
reviewed and discussed periodically at Board meetings, something that
helps to inform key decisions. This year, insights were also discussed as
part of a culture session during the Annual Strategy Conference in
Insights from the workforce engagement sessions and other forms of
engagement have helped ensure we listen and respond to the
perspectives of our employees and identify specific areas to further
enhance our employee experience.
G
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N
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Purpose, values and culture
Our advantaged culture at Diageo connects people's passion for our
brands and purpose, drives ownership for performance, and is a key
enabler in delivering our Performance Ambition. The ongoing evolution
of our culture and capabilities is fundamental to successful talent
attainment, engagement and retention, and therefore critical to our
performance and growth. We have built a strong reputation for
inclusion and diversity which, together with our 'Society 2030: Spirit of
Progress' goals, has helped establish Diageo as an employer of choice
to attract the very best talent. Through the Covid-19 pandemic, we
have become more agile and resilient, enabled by flexible resource
allocation as well as fuelling more measured risk taking and
experimentation across the organisation. This culture is reinforced by
Diageo's Code of Business Conduct which applies to all employees
across the world and gives them tools and guidance to enable them to
make the right choices and demonstrate the highest standards of
integrity.
As set out in the schedule of matters reserved for the Board for
decision, the Board is responsible for establishing Diageo’s purpose,
values and culture. It therefore has a responsibility to monitor and
assess how embedded Diageo's culture is and for ensuring that all
policies and practices are aligned with its culture. There are a number
of ways in which the Board monitors and assesses culture, including:
Site visits
Prior to the Covid-19 pandemic, Directors were encouraged wherever
possible to visit the group’s offices, production facilities and sites so that
they can get a better understanding of the business and interact with
employees and the wider workforce. While during the pandemic travel
was highly restricted, in more recent months site visits by Directors have
resumed: Directors visited the company's new headquarters in London
as well as its production facilities in Scotland and Ireland where they
were able to see Diageo’s safety and sustainability processes, to talk
with local management and workforce and to assess how effectively
Diageo’s culture is communicated and embedded at all levels. As part
of the Board's workforce engagement programme, the Chairman and
other Non-Executive Directors regularly hold in-person and virtual
meetings, townhalls and question and answer sessions with Diageo
employees in different locations.
Employee surveys
The Board receives reports from the Chief HR Officer on the results of
the company’s global annual ‘Your Voice’ survey, including levels of
employee engagement, employee perceptions of Diageo’s purpose
and of their line managers (including net promoter scores), and any
themes raised. The survey results also give visibility of areas on which
management must continue to focus, including continued simplification
and process improvement work across the business.
SpeakUp allegation reporting
The Business Integrity team provides regular reports to the Audit
Committee of allegations of breaches of the Code of Business Conduct
and other group policies, including those received through our
confidential and independent whistle-blowing service SpeakUp. These
reports also include analyses of emerging trends, investigation status
reports and closure rates, and summaries of actions taken. These
reports enable the Directors to gain an understanding of common
issues and action planning, as well as providing insights into how
embedded Diageo’s purpose, values and culture are across its markets
and functions.
For more details of the SpeakUp service, see pages 40 and 87.
Workforce engagement programme
Insights drawn from the Chairman’s annual programme of workforce
engagement are also used by the Board to monitor and assess the
culture of the company. In recent years the engagement programme
has been expanded to enable other Non-Executive Directors to support
the Chairman by directly engaging with employees from a variety of
regions, functions and levels in the business. For more on workforce
engagement, see pages 92 and 96.
Additional information
Internal control and risk management
An ongoing process has been established for identifying, evaluating
and managing risks faced by the group. This process, which complies
with the requirements of the Code, has been in place for the full
financial year and up to the date the consolidated financial statements
were approved and accords with the guidance issued by the FRC in
September 2014, entitled ‘Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting’. The Board
confirms that, through the activities of the Audit Committee described
below, a robust assessment of the principal and emerging risks facing
the company, including those that would threaten its business model,
future performance, solvency or liquidity, has been carried out. These
risks and their mitigations are set out above in the section of this
Annual Report dealing with principal and emerging risks on pages
42-45.
The Board acknowledges that it is responsible for the company’s
systems of internal control and risk management and for reviewing
their effectiveness. The Board confirms that, through the activities of the
Audit Committee described below, it has reviewed the effectiveness of
the company’s systems of internal control and risk management.
During the year, in line with the Code, the Board considered the nature
and extent of the risks it was willing to take to achieve its strategic goals
and reviewed the existing internal statement of risk appetite, which had
been updated this year by the Executive Audit & Risk Committee and
which was then considered and recommended to the Board by the
Audit Committee. The Audit Committee review the company's principal
risks regularly throughout the year in accordance with a schedule
proposed by management with each such risk being reviewed by
management in the Audit & Risk Commitee prior to it being considered
by the Audit Committee. The Board also regularly reviews emerging
and disruptive risks as part of its Annual Strategy Conference, held this
year in May, from which a number of topics are identified for more
detailed review by either the Board or the Audit Committee over the
following 12 months. The company has in place internal control and risk
management systems in relation to the company’s financial reporting
process and the group’s process for the preparation of consolidated
accounts. Further, a review of the contents of the company's public
filings and disclosures, including its consolidated financial statements
and non-financial disclosures, is completed by management through
the Filings Assurance Committee to ensure that the contents of the
company's interim and preliminary results announcements, Annual
Report and Form 20-F appropriately reflect the non-financial and
financial position and results of the group. Further details of this are set
out in the Audit Committee report on pages 99-103.
Viability statement
In accordance with the Code, the Board has also considered the
company’s longer-term viability, based on a robust assessment of its
principal and emerging risks. This was done through the work of the
Audit Committee which recommended the Viability statement to the
Board. For further information about how the Board has reviewed the
long-term prospects of the group, see page 46.
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Corporate governance report continued
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 the base case scenario,
management has included assumptions for mid-single digit net sales
growth, operating margin improvement and global TBA market share
growth. In light of the ongoing geopolitical volatility, the base case
outlook and plausible downside scenarios have incorporated
considerations for a slower post-pandemic economic recovery, supply
chain disruptions, higher inflation and further geopolitical deterioration.
Even under these scenarios, the group’s cash position is still expected to
remain strong, as the group's liquidity was protected by issuing
€1,650 million of fixed rate euro and £900 million of fixed rate sterling
denominated bonds 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 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 drawdowns on committed facilities. Having
considered the outcome of these assessments, the Directors are
comfortable that the company is a going concern for at least 12 months
from the date of signing the group's consolidated financial statements.
Political donations
The group has not given any money for political purposes in the United
Kingdom and made no donations to EU political organisations and
incurred no EU political expenditure during the year. The group made
contributions to non-EU political parties totalling £0.64 million during
the year (2021 – £0.39 million). These contributions were made almost
exclusively to federal and state candidate committees, state political
parties and federal leadership committees in North America (consistent
with applicable laws), where it is common practice to make political
contributions. No particular political persuasion was supported and
contributions were made with the aim of promoting a better
understanding of the group and its views on commercial matters, as
well as a generally improved business environment.
Directors' responsibilities in respect of the Annual Report, Form
20-F and financial statements
The Directors are responsible for preparing the Annual Report, the
information filed with the SEC on Form 20-F and the group and parent
company financial statements in accordance with applicable law and
regulation. Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors have
prepared the group consolidated financial statements in accordance
with UK-adopted international accounting standards and the parent
company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and
applicable law). In preparing the group consolidated financial
statements, the Directors have also elected to comply with International
Financial Reporting Standards issued by the International Accounting
Standards Board (IFRSs as issued by IASB). The group has also
prepared its consolidated financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the group and parent company and of the
profit or loss of the group and parent company for that period. In
preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
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• state whether applicable UK-adopted international accounting
standards, IFRSs issued by IASB and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union have been followed for the group
financial statements and United Kingdom Accounting Standards,
comprising FRS 101 ‘Reduced Disclosure Framework’ and applicable
law have been followed for the parent company financial
statements, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and company will
continue in business.
The Directors are responsible for safeguarding the assets of the group
and parent company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. The Directors
are also responsible for keeping adequate accounting records that are
sufficient to show and explain the group’s and parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the group and parent company and enable them
to ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the company’s website. Legislation in
the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual Report and financial statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group’s and
parent company’s position and performance, business model and
strategy. Each of the Directors, whose names and functions are listed
on pages 84 and 85 confirm that, to the best of their knowledge:
• the group consolidated financial statements, which have been
prepared in accordance with UK-adopted international accounting
standards, IFRSs issued by IASB and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the group;
• the parent company financial statements, which have been
prepared in accordance with United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’ and
applicable law, give a true and fair view of the assets, liabilities,
financial position and profit of the parent company; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the group and
parent company, together with a description of the principal risks
and uncertainties that it faces.
In accordance with section 418 of the Companies Act 2006, each of
the Directors who held office at the date of the approval of the
Directors’ report confirm that, so far as the Director is aware, there is no
relevant audit information of which the group’s and parent company’s
auditors are unaware, and each Director has taken all the steps that
they ought to have taken as a Director in order to make themselves
aware of any relevant audit information and to establish that the
group's and parent company’s auditors are aware of that information.
The responsibility statement was approved by the Board of Directors on
27 July 2022.
Corporate governance report continued
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 the base case scenario,
management has included assumptions for mid-single digit net sales
growth, operating margin improvement and global TBA market share
growth. In light of the ongoing geopolitical volatility, the base case
outlook and plausible downside scenarios have incorporated
considerations for a slower post-pandemic economic recovery, supply
chain disruptions, higher inflation and further geopolitical deterioration.
Even under these scenarios, the group’s cash position is still expected to
remain strong, as the group's liquidity was protected by issuing
€1,650 million of fixed rate euro and £900 million of fixed rate sterling
denominated bonds 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 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 drawdowns on committed facilities. Having
considered the outcome of these assessments, the Directors are
comfortable that the company is a going concern for at least 12 months
from the date of signing the group's consolidated financial statements.
Political donations
The group has not given any money for political purposes in the United
Kingdom and made no donations to EU political organisations and
incurred no EU political expenditure during the year. The group made
contributions to non-EU political parties totalling £0.64 million during
the year (2021 – £0.39 million). These contributions were made almost
exclusively to federal and state candidate committees, state political
parties and federal leadership committees in North America (consistent
with applicable laws), where it is common practice to make political
contributions. No particular political persuasion was supported and
contributions were made with the aim of promoting a better
understanding of the group and its views on commercial matters, as
well as a generally improved business environment.
20-F and financial statements
The Directors are responsible for preparing the Annual Report, the
information filed with the SEC on Form 20-F and the group and parent
company financial statements in accordance with applicable law and
regulation. Company law requires the Directors to prepare financial
statements for each financial year. Under that law, the Directors have
prepared the group consolidated financial statements in accordance
with UK-adopted international accounting standards and the parent
company financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and
applicable law). In preparing the group consolidated financial
statements, the Directors have also elected to comply with International
Financial Reporting Standards issued by the International Accounting
Standards Board (IFRSs as issued by IASB). The group has also
prepared its consolidated financial statements in accordance with
international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
Under company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the group and parent company and of the
profit or loss of the group and parent company for that period. In
preparing the financial statements, the Directors are required to:
• state whether applicable UK-adopted international accounting
standards, IFRSs issued by IASB and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union have been followed for the group
financial statements and United Kingdom Accounting Standards,
comprising FRS 101 ‘Reduced Disclosure Framework’ and applicable
law have been followed for the parent company financial
statements, subject to any material departures disclosed and
explained in the financial statements;
• make judgements and accounting estimates that are reasonable
and prudent; and
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the group and company will
continue in business.
The Directors are responsible for safeguarding the assets of the group
and parent company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. The Directors
are also responsible for keeping adequate accounting records that are
sufficient to show and explain the group’s and parent company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the group and parent company and enable them
to ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the company’s website. Legislation in
the United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual Report and financial statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the group’s and
parent company’s position and performance, business model and
strategy. Each of the Directors, whose names and functions are listed
on pages 84 and 85 confirm that, to the best of their knowledge:
prepared in accordance with UK-adopted international accounting
standards, IFRSs issued by IASB and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union, give a true and fair view of the
assets, liabilities, financial position and profit of the group;
• the parent company financial statements, which have been
prepared in accordance with United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’ and
applicable law, give a true and fair view of the assets, liabilities,
financial position and profit of the parent company; and
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the group and
parent company, together with a description of the principal risks
and uncertainties that it faces.
In accordance with section 418 of the Companies Act 2006, each of
the Directors who held office at the date of the approval of the
Directors’ report confirm that, so far as the Director is aware, there is no
relevant audit information of which the group’s and parent company’s
auditors are unaware, and each Director has taken all the steps that
they ought to have taken as a Director in order to make themselves
aware of any relevant audit information and to establish that the
group's and parent company’s auditors are aware of that information.
Directors' responsibilities in respect of the Annual Report, Form
• the group consolidated financial statements, which have been
• select suitable accounting policies and then apply them consistently;
The responsibility statement was approved by the Board of Directors on
27 July 2022.
Audit Committee report
Ensuring integrity
across the business
Dear Shareholder
On behalf of the Audit
Committee, I am pleased to
present the Committee’s report
for the year ended 30 June 2022.
The Audit Committee has carried
out its duties during the year
effectively and to a high standard,
providing independent oversight
with the support of management
and external auditors.
During the year, the Committee discharged its role in monitoring and
reviewing the integrity of the company’s financial statements and
reporting, its internal control and risk management processes, its audit
and risk activities, business conduct and integrity, whistleblowing and
breach allegation investigations, and the appointment and
performance of the external auditor. The Committee also reviewed the
company's principal and emerging risks and its approach to risk
appetite and mitigations, focussing this year in particular on key risks
including cyber security, climate change, data privacy and
developments in international taxation. The Committee recommended
the addition of a new principal risk relating to supply chain disruption,
which the Board has approved. We also received and reviewed regular
reports on internal audits, business integrity and controls assurance
work, breach allegation and investigation processes, as well as updates
on the steps being taken to address internal audit findings and controls
issues.
The Audit Committee has also been looking ahead towards potential
future regulatory changes and developing best practice. In particular,
we note the UK government's proposed reforms to the audit and
corporate governance regime which were published on 31 May 2022
and which include the creation of a new regulator for the audit industry,
requirements in relation to assurance of non-financial information and
increased disclosure requirements in respect of internal controls. In
anticipation of these reforms and under the supervision of the
Committee, management has reviewed and implemented a number of
changes in its approach to external reporting, including preliminary
steps in determining the scope and contents of the company's audit
and assurance policy. The Committee has also monitored initiatives of
other regulatory authorities to provide investors with consistent,
comparable and reliable information on climate-related and ESG
matters. We are supportive of regulation which enables informed
investment decisions and support efforts to encourage harmonisation
across regulatory regimes.
The performance of the Audit Committee was evaluated this year as
part of the broader Board evaluation, concluding that the Audit
Committee’s performance over the past year had continued to be
excellent. Further details of the evaluation, its recommendations and
actions can be found on pages 95. We are committed to continue to
focus on fulfilling our duties with diligence.
Alan Stewart
Chairman of the Audit Committee
G
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Role and composition of the Audit Committee
The formal role of the Audit Committee is set out in its terms of
reference, which are available at https://www.diageo.com/en/our-
business/corporate-governance. The members of the Audit Committee
are independent non-executive directors and it comprises Alan Stewart
(Committee Chairman), Melissa Bethell, Karen Blackett, Susan Kilsby,
Valérie Chapoulaud-Floquet, Sir John Manzoni, Lady Mendelsohn and
Ireena Vittal. The Chairman of the Board, the Chief Financial Officer, the
General Counsel & Company Secretary, the Group Controller, the
Head of Global Audit & Risk (GAR), the Chief Business Integrity Officer,
the General Counsel Corporate, the Group Chief Accountant and the
external auditor regularly attend meetings of the Committee. The Audit
Committee met privately with the external auditor, the Chief Business
Integrity Officer and the Head of GAR regularly during the year. During
the course of the year, the Committee met five times and its duly
appointed subcommittee met once. Details of attendance of all Board
and Committee meetings by Directors are set out on page 90.
Reporting and financial statements
During the year, the Audit Committee reviewed the interim results
announcement, including the interim financial statements, the Annual
Report and associated preliminary results announcement and Form 20-
F, focussing on key areas of judgement and complexity, critical
accounting policies, disclosures (including those relating to contingent
liabilities, climate change and principal risks), viability and going
concern assessments, provisioning and any changes required in these
areas or policies. The Audit Committee has also focussed in particular
on the company’s approach to assurance, internal approvals
processes, and developments in climate change risk reporting. Building
on the approach taken during the previous year in relation to reporting
in compliance with the recommendations of the Task Force on Climate-
related Financial Disclosures, during the year ended 30 June 2022 the
company has undertaken further risk assessments and scenario
analyses, and accordingly increased its climate-related disclosures as
further set out on pages 47-56.
The company has in place internal control and risk management
systems in relation to the company’s financial and non-financial
reporting process including the group’s process for the preparation of
consolidated financial statements. A review of the consolidated
financial statements is completed by the Filings Assurance Committee
(FAC) to ensure that the financial position and results of the group are
appropriately reflected therein. In addition to reviewing draft financial
statements for publication at the half and full year, the FAC is
responsible for examining the company’s financial and non-financial
information and disclosures, the effectiveness of internal controls
relating to financial and non-financial reporting and disclosures, legal
and compliance issues and determining whether the company’s
disclosures are accurate and adequate. The FAC comprises senior
executives such as the Chief Executive, the Chief Financial Officer, the
General Counsel & Company Secretary, the General Counsel
Corporate & Deputy Company Secretary, the Group Controller, the
Group Chief Accountant, the Head of Investor Relations, the Head of
GAR and the Chief Business Integrity Officer. The company’s external
auditor also attends meetings of the FAC. The Audit Committee
reviewed the work of the FAC and a report on the conclusions of the
FAC process was provided to the Audit Committee by the Chief
Financial Officer.
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External auditor effectiveness and quality
The Audit Committee assesses the ongoing effectiveness and quality of
the external auditor and audit process through a number of methods,
commencing with identification of appropriate risks by the external
auditor as part of its detailed audit plan presented to the Audit
Committee at the start of the audit cycle. These risks were reviewed by
the Committee and the work performed by the auditor was used to test
management’s assumptions and estimates relating to such risks. The
effectiveness of the audit process in addressing these matters was
assessed through reports presented by the auditor to the Audit
Committee which were discussed by the Committee at both the half-
year, in January, and year-end, in July. Following completion of the
audit process, feedback on its effectiveness was provided through
review meetings with the company’s finance team and management
and completion of questionnaires, in advance of management and the
auditor providing assessments of auditor effectiveness and quality to
the Audit Committee for consideration at its meeting in December. This
year the questionnaire was updated to ensure more focus on the extent
to which the auditor had challenged management. The auditor
assessment includes consideration of the findings of the FRC's Audit
Quality Review team, periodic regulatory review carried out by the
PCAOB and the Quality Assurance Department of the Institute of
Chartered Accountants in England and Wales, as well as
benchmarking of the auditor as against its peers. This year, overall
performance of the auditor was assessed as solid, with consistent
strong feedback provided as to auditor independence, quality control
processes, professional expertise, business knowledge and quality
communication between auditors and management. Areas where
continued focus was required included timely review and feedback on
audit matters, better alignment in internal communication, resource
continuity and use, and pro-activity in driving efficiencies and reducing
overruns. It was concluded that the relationship between auditor and
management was strong and open, with good visibility of senior PwC
team members.
During the external audit, the auditor challenged management during
the course of drafting the Annual Report in relation to whether
disclosures as to the impact of certain risks in the financial statements
were sufficiently linked to the risks and disclosures set out in the
Strategic Report and whether there was sufficient balance in the
Strategic Report, on management's approach taken in relation to
impairment testing and on other judgmental matters such as pensions
valuations and actuarial assumptions. The Audit Committee assessed
these challenges and sought additional evidence from management in
support of their assessments. For example, the Audit Committee
requested that independent legal opinions were sought as to the
treatment of potential surplus assets under the rules of the relevant
scheme in light of relevant accounting standards.
Audit Committee report continued
As part of its review of the company's Annual Report and associated
disclosures, the Audit Committee has considered whether the report is
‘fair, balanced and understandable’ and provides the information
necessary for shareholders to assess the company's position,
performance, business model and strategy, as required by Principle N
of the Code. In doing so, the Committee has noted the guidance
issued by the FRC on this subject as well as best practice
recommendations from external advisors. The Committee has
considered factors such as whether the report includes descriptions of
the business model, strategy and principal risks which are sufficiently
clear and detailed to enable users to understand their importance to
the company, whether the report is consistent throughout with the
narrative reflecting the financial statements and understanding of
directors during the year, that information is presented fairly, without
omission of material information and not in a manner which might
mislead users.
The Committee has also considered the presentation of GAAP and
non-GAAP measures to ensure appropriate prominence is given to
GAAP measures and that non-GAAP measures are presented
consistently and can be clearly reconciled. The Audit Committee has
also considered the governance and processes undertaken by
management in drafting, developing and reviewing the contents of the
Annual Report, which have been designed to ensure the robustness
and adequacy of the information contained in it, including review by
and input from senior executives, the company's advisors and through
the work of the FAC. On this basis, the Audit Committee recommended
to the Board that it could make the required statement that the Annual
Report is ‘fair, balanced and understandable’.
External auditor
During the year, the Audit Committee reviewed the external audit
strategy and the findings of the external auditor from its review of the
interim results and its audit of the consolidated financial statements.
The Audit Committee reviews annually the appointment of the auditor
(taking into account the auditor’s effectiveness and independence and
all appropriate guidelines) and makes a recommendation to the Board
accordingly. Any decision to open the external audit to tender is taken
on the recommendation of the Audit Committee. There are no
contractual obligations that restrict the company’s current choice of
external auditor. Following the last tender process, PwC was appointed
as auditor of the company in 2015. Richard Oldfield became the lead
audit partner for the year ended 30 June 2021, following the rotation of
the previous partner, and will remain as audit partner for the year
ending 30 June 2023 onwards. The company is required to have a
mandatory audit tender after 10 years and, as the Audit Committee
considers the relationship with the auditors to be working well and
remains satisfied with their effectiveness and the quality of audit work,
their geographical and professional capabilities, the Audit Committee
does not currently anticipate that it will conduct an audit tender before
it is required to do so in 2025. The Audit Committee considers this to be
in the best interests of the company’s shareholders for the reasons
outlined above and will continue to monitor this annually to ensure the
timing for the audit tender remains appropriate, taking into account the
effectiveness and independence of the auditor.
The company has complied with the provisions of The Statutory Audit
Services for Large Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee Responsibilities)
Order 2014 (CMA Order) for the year ended 30 June 2022.
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External auditor effectiveness and quality
The Audit Committee assesses the ongoing effectiveness and quality of
the external auditor and audit process through a number of methods,
commencing with identification of appropriate risks by the external
auditor as part of its detailed audit plan presented to the Audit
Committee at the start of the audit cycle. These risks were reviewed by
the Committee and the work performed by the auditor was used to test
management’s assumptions and estimates relating to such risks. The
effectiveness of the audit process in addressing these matters was
assessed through reports presented by the auditor to the Audit
Committee which were discussed by the Committee at both the half-
year, in January, and year-end, in July. Following completion of the
audit process, feedback on its effectiveness was provided through
review meetings with the company’s finance team and management
and completion of questionnaires, in advance of management and the
auditor providing assessments of auditor effectiveness and quality to
the Audit Committee for consideration at its meeting in December. This
year the questionnaire was updated to ensure more focus on the extent
to which the auditor had challenged management. The auditor
assessment includes consideration of the findings of the FRC's Audit
Quality Review team, periodic regulatory review carried out by the
PCAOB and the Quality Assurance Department of the Institute of
Chartered Accountants in England and Wales, as well as
benchmarking of the auditor as against its peers. This year, overall
performance of the auditor was assessed as solid, with consistent
strong feedback provided as to auditor independence, quality control
processes, professional expertise, business knowledge and quality
communication between auditors and management. Areas where
continued focus was required included timely review and feedback on
audit matters, better alignment in internal communication, resource
continuity and use, and pro-activity in driving efficiencies and reducing
overruns. It was concluded that the relationship between auditor and
management was strong and open, with good visibility of senior PwC
team members.
During the external audit, the auditor challenged management during
the course of drafting the Annual Report in relation to whether
disclosures as to the impact of certain risks in the financial statements
were sufficiently linked to the risks and disclosures set out in the
Strategic Report and whether there was sufficient balance in the
Strategic Report, on management's approach taken in relation to
impairment testing and on other judgmental matters such as pensions
valuations and actuarial assumptions. The Audit Committee assessed
these challenges and sought additional evidence from management in
support of their assessments. For example, the Audit Committee
requested that independent legal opinions were sought as to the
treatment of potential surplus assets under the rules of the relevant
scheme in light of relevant accounting standards.
Audit Committee report continued
As part of its review of the company's Annual Report and associated
disclosures, the Audit Committee has considered whether the report is
‘fair, balanced and understandable’ and provides the information
necessary for shareholders to assess the company's position,
performance, business model and strategy, as required by Principle N
of the Code. In doing so, the Committee has noted the guidance
issued by the FRC on this subject as well as best practice
recommendations from external advisors. The Committee has
considered factors such as whether the report includes descriptions of
the business model, strategy and principal risks which are sufficiently
clear and detailed to enable users to understand their importance to
the company, whether the report is consistent throughout with the
narrative reflecting the financial statements and understanding of
directors during the year, that information is presented fairly, without
omission of material information and not in a manner which might
mislead users.
The Committee has also considered the presentation of GAAP and
non-GAAP measures to ensure appropriate prominence is given to
GAAP measures and that non-GAAP measures are presented
consistently and can be clearly reconciled. The Audit Committee has
also considered the governance and processes undertaken by
management in drafting, developing and reviewing the contents of the
Annual Report, which have been designed to ensure the robustness
and adequacy of the information contained in it, including review by
and input from senior executives, the company's advisors and through
the work of the FAC. On this basis, the Audit Committee recommended
to the Board that it could make the required statement that the Annual
Report is ‘fair, balanced and understandable’.
External auditor
During the year, the Audit Committee reviewed the external audit
strategy and the findings of the external auditor from its review of the
interim results and its audit of the consolidated financial statements.
The Audit Committee reviews annually the appointment of the auditor
(taking into account the auditor’s effectiveness and independence and
all appropriate guidelines) and makes a recommendation to the Board
accordingly. Any decision to open the external audit to tender is taken
on the recommendation of the Audit Committee. There are no
contractual obligations that restrict the company’s current choice of
external auditor. Following the last tender process, PwC was appointed
as auditor of the company in 2015. Richard Oldfield became the lead
audit partner for the year ended 30 June 2021, following the rotation of
the previous partner, and will remain as audit partner for the year
ending 30 June 2023 onwards. The company is required to have a
mandatory audit tender after 10 years and, as the Audit Committee
considers the relationship with the auditors to be working well and
remains satisfied with their effectiveness and the quality of audit work,
their geographical and professional capabilities, the Audit Committee
does not currently anticipate that it will conduct an audit tender before
it is required to do so in 2025. The Audit Committee considers this to be
in the best interests of the company’s shareholders for the reasons
outlined above and will continue to monitor this annually to ensure the
timing for the audit tender remains appropriate, taking into account the
effectiveness and independence of the auditor.
The company has complied with the provisions of The Statutory Audit
Services for Large Companies Market Investigation (Mandatory Use of
Competitive Tender Processes and Audit Committee Responsibilities)
Order 2014 (CMA Order) for the year ended 30 June 2022.
Auditor independence
The group has a policy on auditor independence and on the use of the
external auditor for non-audit services, which is reviewed annually,
most recently in July 2022. This year there were minor changes to the
policy’s contents, with amendments reflecting internal organisational
changes. Under the auditor independence policy, any member of the
PwC global network shall provide to the company, its subsidiaries or
any related entity only permissible services, subject to the approval of
the Audit Committee after it has properly assessed through its
governance process the threats to independence and the safeguards
applied in accordance with the FRC Ethical Standard and US Public
Company Accounting Oversight Board rules. Any FRC permissible
service to be provided by the auditor, regardless of the size of the
engagement, must be specifically approved by the Audit Committee or
its nominated delegate (being the Chairman of the Audit Committee)
based on a defined scope of pre-approved services. The policy
explicitly specifies the auditor independence review and approval
mechanism process by the Committee for permissible engagements
above the specified threshold of £100,000. Fees paid to the auditor for
audit, audit-related and other services are analysed in note 3(b) to the
consolidated financial statements. The nature and level of all services
provided by the external auditor are factors taken into account by the
Audit Committee when it reviews annually the independence of the
external auditor. During the year, no non-audit services were provided
by the external auditor to the company, its subsidiaries or any related
entity other than personal tax services provided to two Non-Executive
Directors and the provision of services in connection with the issuance
of senior notes by a group company.
'Financial expert’, recent and relevant financial experience
The Board has satisfied itself that the membership of the Audit
Committee includes at least one Director with recent and relevant
financial experience and has competence in accounting and/or
auditing and in the sector which the company operates, and that all
members are financially literate and have experience of corporate
financial matters. For the purposes of the Code and the relevant rule
under SOX, section 407, the Board has determined that Alan Stewart is
independent and may be regarded as an Audit Committee financial
expert, having recent and relevant financial experience, and that all
members of the Audit Committee are independent Non-Executive
Directors with relevant financial and sectoral competence. See pages
84-85 and 90 for details of relevant experience of Directors.
Internal audit and controls assurance
The company’s internal GAR team undertakes an annual audit and risk
plan by delivering a series of internal assurance and audit assignments
across a variety of markets, processes, business units and functions. On
the conclusion of each assignment, GAR issues a report on its findings
which may also include an overall rating as to the status of the market,
process or function being audited, detailed reasons for the rating and
actions to be taken within a specific timetable. The Audit Committee
receives regular reports from the Head of GAR on the latest reports
issued.
This year GAR adapted its processes and audit design to undertake a
number of audits of the group's end-to-end processes and procedures
in addition to more customary market or functional audits. Increasingly
during the year, GAR undertook audits in person as travel restrictions
were lifted in a number of key markets. The Audit Committee assesses
the effectiveness of GAR by reviewing its annual audit plan at the start
of the financial year, monitoring its ongoing quality throughout the
year, and assessing completion rates and feedback provided following
completion of the annual audit plan. Having carried out this
assessment, the Audit Committee is of the view that the quality,
experience and expertise of GAR is appropriate for the business.
The company operates a global controls assurance programme for
controls in each market and function, which monitors compliance with
and effective operation of the company’s controls framework. The
Audit Committee receives regular reports on the status of the controls
assurance plan, actions taken to enhance controls design and
effectiveness, awareness training provided to employees, testing results
and trends analysis derived from the company’s integrated risk
management system. During this year, the oversight and responsibility
for operating the global controls assurance programme was integrated
with the internal audit function. The Committee also reviewed and
approved changes to the principal risk descriptions and risk footprint,
including the elevation of Supply Chain Disruption as a separate
principal risk, as further described on page 42.
G
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100
100
Diageo Annual Report 2022
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101
101
Audit Committee report continued
Business Integrity programmes
Diageo is committed to conducting its business responsibly and in
accordance with all laws and regulations to which its business activities
are subject. We hold ourselves to the principles in our Code of Business
Conduct, which is embedded through a comprehensive training and
education programme for all employees. Our employees are expected
to act in accordance with our values, the Code of Business Conduct
and in compliance with applicable laws and regulations.
Our Code of Business Conduct and other global policies are available
at https://www.diageo.com/en/our-business/corporate-governance.
The Audit Committee monitors compliance with the company’s ethical
standards through the Business Integrity framework, which helps
enhance and protect all aspects of the company’s business. Regular
reports are provided to the Audit Committee by the Chief Business
Integrity Officer on progress in providing guidance, training and tools
for all levels in the business, completion rates for training modules,
launch and rollout of new programmes or policies, monitoring use of
whistle-blowing mechanisms and investigating allegations of breaches.
The Business Integrity function use systems and data to allow for more
efficient breach management oversight, analysis and identification of
root causes, overall trends and indicators, and to monitor investigation
closure rates, which are reported to the Audit Committee.
Senior financial officers’ code of ethics
In accordance with the requirements of SOX and related SEC rules,
Diageo has adopted a code of ethics covering its Chief Executive,
Chief Financial Officer, and other senior financial officers. During the
year, no waivers were granted in respect of, this code of ethics. The full
text of the code of ethics is available at https://www.diageo.com/en/
our-business/corporate-governance. Both the Audit & Risk Committee
and the Audit Committee regularly review the strategy and operation
of the Business Integrity programme through the year.
Management’s report on internal control over financial
reporting
Management, under the supervision of the Chief Executive and Chief
Financial Officer, is responsible for establishing and maintaining
adequate control over the group’s financial reporting. The Filings
Assurance Committee supports the Chief Executive and Chief Financial
Officer in ensuring the accuracy of the company’s financial reporting,
filings and disclosures. As summarised on page 99, prior to interim
reporting and preliminary reporting each year, the Filings Assurance
Committee examines the company’s financial information and
processes, the effectiveness of its controls in respect of financial
reporting, and the contents of its disclosures.
Management has assessed the effectiveness of Diageo’s internal
control over financial reporting (as defined in Rules 13(a)-13(f) and
15(d)-15(f) under the United States Securities Exchange Act of 1934)
based on the framework in the document ‘Internal Control – Integrated
Framework’, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in 2013. Based on this assessment,
management concluded that, as at 30 June 2022, internal control over
financial reporting was effective. During the period covered by this
report, there were no changes in internal control over financial
reporting that have materially affected or are reasonably likely to
materially affect the effectiveness of internal control over financial
reporting. The same independent registered public accounting firm
which audits the group’s consolidated financial statements has audited
the effectiveness of the group’s internal control over financial reporting,
and has issued an unqualified report thereon, which is included in the
integrated audit report which is included in the company’s Form 20-F to
be filed with the SEC.
Committee activities
Details of the main areas of focus of the Audit Committee during the year include those summarised below:
Areas of focus
Corporate
reporting
Internal
controls
External audit
and assurance
• Half and full year external reporting updates
• Interim and preliminary results review and approval
• Annual Report and consolidated financial statements, Form 20-F review and approval
• GAR updates
• Business Integrity updates including breach and reporting update
• Controls testing update and s. 404 assessment
• Report on external audit at half and full year periods
• Insights and observations on reporting review
• Auditor independence and non-audit work reviews
• Auditor independence policy review
• Review of management representation letters
• Appointment of auditor and review of terms of engagement and fees
• Auditor performance and effectiveness review and assessment
Risk
management
• Principal and emerging risk reviews and tracking
• Risk updates, including group risk footprint and risk appetite review and approvals
• Litigation, cyber and tax risk reviews
Strategic priority
Strategic outcome
1
1
1
1
6
EG
CVC
CT
CT
CT
6
EG
CVC
CT
Strategic priorities
Strategic outcomes
1
2
Sustain quality growth
Embed everyday efficiency
3
4
Invest smartly
Promote positive drinking
5
6
Champion inclusion and diversity
EG
Efficient growth
CT
Credibility and trust
Pioneer grain-to-glass sustainability
CVC
Consistent value creation
EP
Engaged people
102
102
Diageo Annual Report 2022
Diageo Annual Report 2022
Audit Committee report continued
Business Integrity programmes
Management’s report on internal control over financial
Diageo is committed to conducting its business responsibly and in
reporting
accordance with all laws and regulations to which its business activities
are subject. We hold ourselves to the principles in our Code of Business
Conduct, which is embedded through a comprehensive training and
education programme for all employees. Our employees are expected
to act in accordance with our values, the Code of Business Conduct
and in compliance with applicable laws and regulations.
Our Code of Business Conduct and other global policies are available
at https://www.diageo.com/en/our-business/corporate-governance.
The Audit Committee monitors compliance with the company’s ethical
standards through the Business Integrity framework, which helps
enhance and protect all aspects of the company’s business. Regular
reports are provided to the Audit Committee by the Chief Business
Integrity Officer on progress in providing guidance, training and tools
for all levels in the business, completion rates for training modules,
launch and rollout of new programmes or policies, monitoring use of
whistle-blowing mechanisms and investigating allegations of breaches.
The Business Integrity function use systems and data to allow for more
efficient breach management oversight, analysis and identification of
root causes, overall trends and indicators, and to monitor investigation
closure rates, which are reported to the Audit Committee.
Senior financial officers’ code of ethics
Management, under the supervision of the Chief Executive and Chief
Financial Officer, is responsible for establishing and maintaining
adequate control over the group’s financial reporting. The Filings
Assurance Committee supports the Chief Executive and Chief Financial
Officer in ensuring the accuracy of the company’s financial reporting,
filings and disclosures. As summarised on page 99, prior to interim
reporting and preliminary reporting each year, the Filings Assurance
Committee examines the company’s financial information and
processes, the effectiveness of its controls in respect of financial
reporting, and the contents of its disclosures.
Management has assessed the effectiveness of Diageo’s internal
control over financial reporting (as defined in Rules 13(a)-13(f) and
15(d)-15(f) under the United States Securities Exchange Act of 1934)
based on the framework in the document ‘Internal Control – Integrated
Framework’, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in 2013. Based on this assessment,
management concluded that, as at 30 June 2022, internal control over
financial reporting was effective. During the period covered by this
report, there were no changes in internal control over financial
reporting that have materially affected or are reasonably likely to
materially affect the effectiveness of internal control over financial
reporting. The same independent registered public accounting firm
In accordance with the requirements of SOX and related SEC rules,
which audits the group’s consolidated financial statements has audited
Diageo has adopted a code of ethics covering its Chief Executive,
the effectiveness of the group’s internal control over financial reporting,
Chief Financial Officer, and other senior financial officers. During the
and has issued an unqualified report thereon, which is included in the
year, no waivers were granted in respect of, this code of ethics. The full
integrated audit report which is included in the company’s Form 20-F to
text of the code of ethics is available at https://www.diageo.com/en/
be filed with the SEC.
our-business/corporate-governance. Both the Audit & Risk Committee
and the Audit Committee regularly review the strategy and operation
of the Business Integrity programme through the year.
Committee activities
Areas of focus
Corporate
reporting
Internal
controls
External audit
and assurance
Details of the main areas of focus of the Audit Committee during the year include those summarised below:
• Half and full year external reporting updates
• Interim and preliminary results review and approval
• Annual Report and consolidated financial statements, Form 20-F review and approval
• GAR updates
• Business Integrity updates including breach and reporting update
• Controls testing update and s. 404 assessment
• Report on external audit at half and full year periods
• Insights and observations on reporting review
• Auditor independence and non-audit work reviews
• Auditor independence policy review
• Review of management representation letters
• Appointment of auditor and review of terms of engagement and fees
• Auditor performance and effectiveness review and assessment
Strategic priority
Strategic outcome
6
EG
CVC
CT
CT
CT
1
1
1
1
Strategic priorities
1
2
3
4
5
6
Sustain quality growth
Invest smartly
Champion inclusion and diversity
EG
Efficient growth
CT
Credibility and trust
Embed everyday efficiency
Promote positive drinking
Pioneer grain-to-glass sustainability
CVC
Consistent value creation
EP
Engaged people
Strategic outcomes
102
102
Diageo Annual Report 2022
Diageo Annual Report 2022
Significant issues and judgements
Significant issues and judgements that were considered in respect of the 2022 financial statements are set out below. Our
consideration of issues included discussion of the key audit matters as outlined in the appendix to the independent auditors’ report.
Matter considered
How the Audit Committee addressed the matter
The nature and size of any one-off items
impacting the quality of the earnings and cash
flows.
The Audit Committee assessed whether the related presentation and disclosure of those items in
the financial statements were appropriate based on management’s analysis, and concluded
that they were.
Items that were to be presented as
exceptional.
Refer to note 4 of the Financial Statements.
The Audit Committee assessed whether the reporting of those items as exceptional was in line
with the group’s accounting policy, and that sufficient disclosure was provided in the financial
statements, and concluded that they were.
Whether the carrying value of assets, in
particular intangible assets, was supportable.
Refer to notes 6, 9 and 10 of the Financial
Statements.
The group’s more significant tax exposures
and the appropriateness of any related
provisions and financial statement disclosures.
Refer to page 44 of 'Our principal risks and
risk management' and note 7 of the Financial
Statements.
The appropriateness of the valuation of post
employment liabilities, and the recognition of
any surplus.
Refer to note 14 of the Financial Statements.
The Audit Committee reviewed the key assumptions and result of management's impairment
assessments that were performed during the year, and the methodology applied in conducting
impairment assessments. The Committee was provided with information about the carrying
amounts and the key assumptions incorporated in management’s estimate of discounted cash
flows. The Committee reviewed the key assumptions used in the impairment testing, including
management’s cash flow forecasts, growth rates and the discount rate used in value in use
calculations and agreed they were appropriate. The Committee agreed with management’s
judgements regarding the McDowell’s No.1 and Bell’s brands, which resulted in the recognition
of impairment of £317 million in the year ended 30 June 2022. The Committee agreed that the
recoverable amount of the company’s other assets was in excess of their carrying value and that
appropriate disclosure was provided with respect to assets impaired, and whose value is more
sensitive to changes in assumptions.
The Audit Committee agreed that disclosure of tax risk appropriately addresses the significant
change in the international tax environment, and that appropriate provisions and other
disclosure with respect to uncertain tax positions were reflected in the financial statements.
G
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The measurement of post employment liabilities is sensitive to changes in long-term interest rates,
inflation and mortality assumptions. Having reviewed management’s papers setting out key
changes to actuarial assumptions, the Audit Committee agreed that the assumptions used in the
valuation are appropriate. The Committee reviewed management’s assessment of the economic
benefit available as a refund of the surplus or as a reduction of contribution and the key
judgements made in respect of the surplus restriction and concluded that those judgements were
appropriate. The Committee reviewed and concluded that sufficient disclosures were provided in
the financial statements.
Significant legal matters impacting the group.
Refer to note 19 of the Financial Statements.
The Committee agreed that adequate provision and/or disclosure have been made for all
material litigation and disputes, based on the current most likely outcomes, including the
litigation summarised in note 19 of the Financial Statements.
Risk
management
• Principal and emerging risk reviews and tracking
• Risk updates, including group risk footprint and risk appetite review and approvals
• Litigation, cyber and tax risk reviews
6
EG
CVC
CT
The application of hyperinflationary
accounting in Turkey.
Refer to note 1 of the Financial Statements.
Accounting for business combinations.
Refer to note 8 of the Financial Statements.
Whether the Annual Report is fair, balanced
and understandable.
The impact of climate change on the group’s
financial reporting and financial statements.
Refer to pages 47 to 56 of 'Responding to
climate-related risks' and note 1 and note 9 of
the Financial Statements.
Diageo acquired 21Seeds on 31 March 2022 and completed a number of other smaller
acquisitions during the year ended 30 June 2022, for an aggregate consideration of £162
million. As at the completion date of these acquisitions, Diageo performed valuations of the
identifiable assets and liabilities and the resulting goodwill. The purchase price allocation
exercises are subject to management’s judgement and estimates, including forecast cash flows,
buyer specific synergies and the applicable discount rates used in valuations. The Committee
reviewed management’s purchase price allocations and the disclosures provided in the Financial
Statements and concluded they were appropriate.
Hyperinflationary accounting became applicable to Turkey in the year ended 30 June 2022. The
Audit Committee agreed with management’s analysis of Turkey becoming a hyperinflationary
economy. The Audit Committee reviewed and agreed with management’s assessment of the
hyperinflation adjustments and the presentation and disclosures made. The Committee reviewed
and agreed with the recognition of the restatement of non-monetary items at the beginning of
the reporting period, including the impairment of the restated non-current assets recognised,
within equity. The Committee reviewed the disclosures in respect of hyperinflationary accounting,
and concluded they were appropriate.
The Audit Committee concluded that the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for shareholders to assess the
company’s performance, business model and strategy and that there is an appropriate balance
between statutory (GAAP) and adjusted (non-GAAP) measures ensuring equal prominence.
The Audit Committee agreed that the disclosures on pages 47 to 56 made in response to the
recommendations of the Task Force on Climate-related Financial Disclosures are appropriate
and that the assumptions used in the financial statements are consistent with these disclosures.
Diageo Annual Report 2022
Diageo Annual Report 2022
103
103
Nomination Committee report
Championing our talent
strategy
Dear Shareholder
I am pleased to provide the report
of the Nomination Committee for
the year ended 30 June 2022.
The Committee is responsible for
succession planning for the
Board, maintaining a pipeline of
strong candidates for potential
nomination as Non-Executive
Directors and Executive Directors,
while also ensuring robust succession planning and talent strategy for
the Executive Committee. During this year, the Committee has
recommended the appointment of Karen Blackett as Non-Executive
Director, who joined the Board on 1 June 2022. Karen brings to the
Board her extensive experience of the media, marketing and creative
industries, and is a passionate advocate for inclusion, diversity and
creating opportunities for all. Karen's appointment had been made
following a detailed market review assisted by Egon Zehnder, an
independent executive search agency.
As travel restrictions eased over the course of the year, we resumed
office and production facility visits and tours for Board members, in
particular those Directors who had joined the Board since the
beginning of the pandemic, who had the opportunity to visit key
distilleries, packaging facilities, maturation sites and other production
plants in Scotland as well as the Guinness Storehouse and brewery in
Ireland.
This year the Committee also managed the evaluation of the
effectiveness of the Board, its Committees, members and processes.
Further details, including the review’s conclusions, recommendations
and actions as presented to the Board in January 2022, are set out on
page 95.
The Committee has also been involved in reviewing talent planning
and succession of Executive Committee membership, with a number of
changes being approved during the year. Tom Shropshire assumed
the role of General Counsel & Company Secretary in September 2021,
Louise Prashad was appointed Chief HR Officer in January 2022 and
Dayalan Nayager was appointed President, Africa following John
O'Keeffe's appointment as President, Asia-Pacific in July 2022. More
recently, we announced the appointment of Debra Crew as Chief
Operating Officer with responsibility for driving continuing performance
momentum across Diageo's markets and supply operations, and of
Claudia Schubert as President, North America, effective 1 October
2022. I congratulate all those who have joined the Board or Executive
Committee in the past year and those who will do so shortly.
Javier Ferrán
Chairman of the Nomination Committee
104
104
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Diageo Annual Report 2022
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 90.
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. The Board has concluded that each Non-
Executive Director has sufficient time to discharge their duties as a
director of the company, taking into consideration their external
appointments and commitments.
Nomination Committee report
Championing our talent
strategy
Dear Shareholder
I am pleased to provide the report
of the Nomination Committee for
the year ended 30 June 2022.
The Committee is responsible for
succession planning for the
Board, maintaining a pipeline of
strong candidates for potential
nomination as Non-Executive
Directors and Executive Directors,
while also ensuring robust succession planning and talent strategy for
the Executive Committee. During this year, the Committee has
recommended the appointment of Karen Blackett as Non-Executive
Director, who joined the Board on 1 June 2022. Karen brings to the
Board her extensive experience of the media, marketing and creative
industries, and is a passionate advocate for inclusion, diversity and
creating opportunities for all. Karen's appointment had been made
following a detailed market review assisted by Egon Zehnder, an
independent executive search agency.
As travel restrictions eased over the course of the year, we resumed
office and production facility visits and tours for Board members, in
particular those Directors who had joined the Board since the
beginning of the pandemic, who had the opportunity to visit key
distilleries, packaging facilities, maturation sites and other production
plants in Scotland as well as the Guinness Storehouse and brewery in
Ireland.
page 95.
This year the Committee also managed the evaluation of the
effectiveness of the Board, its Committees, members and processes.
Further details, including the review’s conclusions, recommendations
and actions as presented to the Board in January 2022, are set out on
The Committee has also been involved in reviewing talent planning
and succession of Executive Committee membership, with a number of
changes being approved during the year. Tom Shropshire assumed
the role of General Counsel & Company Secretary in September 2021,
Louise Prashad was appointed Chief HR Officer in January 2022 and
Dayalan Nayager was appointed President, Africa following John
O'Keeffe's appointment as President, Asia-Pacific in July 2022. More
recently, we announced the appointment of Debra Crew as Chief
Operating Officer with responsibility for driving continuing performance
momentum across Diageo's markets and supply operations, and of
Claudia Schubert as President, North America, effective 1 October
2022. I congratulate all those who have joined the Board or Executive
Committee in the past year and those who will do so shortly.
Javier Ferrán
Chairman of the Nomination Committee
104
104
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Diageo Annual Report 2022
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 90.
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. The Board has concluded that each Non-
Executive Director has sufficient time to discharge their duties as a
director of the company, taking into consideration their external
appointments and commitments.
Induction and training
With the easing of travel restrictions during the year, we have reverted
to more customary induction processes for newly appointed directors.
In addition to individual meetings with Executive Committee members
and other senior executives, Directors who have joined the Board since
the beginning of the pandemic have had the opportunity to visit a
number of the company’s production facilities and offices in London,
Scotland and Ireland. These include the company's new head office in
London, the Guinness Storehouse and St James's Gate Brewery in
Dublin, the group's spirits production facilities and archives in Scotland.
Induction programmes for new Directors 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. These induction processes supplement existing
practices whereby a continuing understanding of the business is
developed through appropriate business engagements for Non-
Executive Directors 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 Board member;
• the design and conduct of the annual review of Board, committee
and individual Director effectiveness and performance and a review
of the findings of the review and recommended actions;
• consideration and approval of the report of the Committee in the
company’s Annual Report and consolidated financial statements for
the year ended 30 June 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, that its remit and scope was sufficient,
and that the Committee was effective in maintaining a suitable pipeline
of talent for non-executive roles and in monitoring succession planning
for executive director and senior management roles. Further details of
the evaluation can be found on page 95.
Diversity
The Board has a longstanding commitment to prioritise diversity
and supports the recommendations of the FTSE Women
Leaders Review (previously the Hampton-Alexander 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 2022, the percentage of women on the Executive
Committee and their direct reports is 40%.
G
O
V
E
R
N
A
N
C
E
Board
composition
Non-executive
director tenure
Chairman
Executive director
Non-executive director
0 – 3 years
3 – 6 years
6 – 9 years
Board gender
diversity
Board ethnic
diversity
Male
Female
Directors of colour
White European
Executive Committee nationality
23%
23%
8% 8% 8%
14%
8%
8%
British
American
Irish
Indian
Spanish
American/British
South African/British
Colombian
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 2022.
Diageo Annual Report 2022
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105
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."
In this year’s report
Remuneration at a glance
Pay for performance at a glance
Remuneration Committee governance
Directors’ remuneration policy
Annual report on remuneration
Looking back on 2022
Single figure of remuneration table
Annual incentive payouts for 2022
Long-term incentives vesting in 2022
Pension and benefits in 2022
Long-term incentives awarded in 2022
Outstanding share plan interests
Shareholding requirement
CEO total remuneration and TSR performance
CEO pay ratio
Annual change in pay for Directors and employees
Non-Executive Director pay
Looking ahead to 2023
Salary increases for the year ahead
Annual incentive design for the year ahead
Long-term incentives for the year ahead
109
110
111
113
119
119
120
121
122
123
124
125
126
126
128
129
130
130
130
Dear Shareholder
I am pleased to present the Directors' remuneration report for the year
ended 30 June 2022, which contains:
• The current Directors’ remuneration policy, which was
approved at the AGM on 28 September 2020; and
• The annual remuneration report, describing how the policy
has been put into practice during 2022, and how the policy
will be implemented in 2023.
Business performance
As mentioned elsewhere in the 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
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 year and an increase in return on
invested capital to 16.8%.
The organisation has continued to show resilience, skill, creativity, focus
and determination during what has remained an uncertain time.
Employee engagement has remained very high, the company has
continued to 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 Progress’. Again this year, Diageo
has not participated in any furloughing schemes or initiated any
widespread lay-offs as a result of ongoing impacts of the Covid-19
pandemic. The company has continued to provide support to its
employees, customers and the 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 120.
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Diageo Annual Report 2022
Diageo Annual Report 2022
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."
In this year’s report
Remuneration at a glance
Pay for performance at a glance
Remuneration Committee governance
Directors’ remuneration policy
Annual report on remuneration
Looking back on 2022
Single figure of remuneration table
Annual incentive payouts for 2022
Long-term incentives vesting in 2022
Pension and benefits in 2022
Long-term incentives awarded in 2022
Outstanding share plan interests
Shareholding requirement
CEO total remuneration and TSR performance
CEO pay ratio
Annual change in pay for Directors and employees
Non-Executive Director pay
Looking ahead to 2023
Salary increases for the year ahead
Annual incentive design for the year ahead
Long-term incentives for the year ahead
Dear Shareholder
I am pleased to present the Directors' remuneration report for the year
ended 30 June 2022, which contains:
• The current Directors’ remuneration policy, which was
approved at the AGM on 28 September 2020; and
• The annual remuneration report, describing how the policy
has been put into practice during 2022, and how the policy
will be implemented in 2023.
Business performance
As mentioned elsewhere in the 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
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 year and an increase in return on
invested capital to 16.8%.
The organisation has continued to show resilience, skill, creativity, focus
and determination during what has remained an uncertain time.
Employee engagement has remained very high, the company has
continued to 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 Progress’. Again this year, Diageo
has not participated in any furloughing schemes or initiated any
widespread lay-offs as a result of ongoing impacts of the Covid-19
pandemic. The company has continued to provide support to its
employees, customers and the 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 120.
109
110
111
113
119
119
120
121
122
123
124
125
126
126
128
129
130
130
130
106
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Diageo Annual Report 2022
Diageo Annual Report 2022
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 and performance measures for the annual and long-term
incentives remain unchanged for 2023 as these continue to align with
the company’s strategy.
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 performance measures in the incentive plans align with the
strategy and the key performance indicators on pages 32-34. The
financial measures for the annual incentive focus on net sales growth,
operating profit (both of which represent critical measures of growth for
Diageo) and operating cash conversion (which recognises the criticality
of strong cash performance and cash containment, particularly in the
current challenging 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 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.
G
O
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E
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N
A
N
C
E
Delivery of business strategy
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
A significant proportion of remuneration is delivered in
variable pay linked to business and individual
performance, 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
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
Executives are 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.
Diageo Annual Report 2022
Diageo Annual Report 2022
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Directors' remuneration report continued
The measures under the long-term incentive plans continue to reflect
the company’s strategic priorities and key drivers of long-term growth
by incorporating organic net sales, organic profit before exceptional
items and tax, free cash flow, TSR and key Environmental, Social and
Governance (ESG) measures (greenhouse gas reduction, water
efficiency, positive drinking and gender and 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 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 a number of
changes in the Executive Committee during the year.
In summary
Diageo’s strong performance in ongoing challenging market conditions
is reflected in the incentive outcomes and the decisions the Committee
has 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 is due for
renewal at the 2023 AGM, I look forward to engaging with
shareholders and institutional advisors in the coming year.
I hope that you will join the Board in approving the advisory resolution
on the Directors' remuneration report at the AGM on 6 October 2022.
Susan Kilsby
Non-Executive Director and Chair of the Remuneration Committee
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Directors' remuneration report continued
The measures under the long-term incentive plans continue to reflect
the company’s strategic priorities and key drivers of long-term growth
by incorporating organic net sales, organic profit before exceptional
items and tax, free cash flow, TSR and key Environmental, Social and
Governance (ESG) measures (greenhouse gas reduction, water
efficiency, positive drinking and gender and 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 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 a number of
changes in the Executive Committee during the year.
In summary
Diageo’s strong performance in ongoing challenging market conditions
is reflected in the incentive outcomes and the decisions the Committee
has 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 is due for
renewal at the 2023 AGM, I look forward to engaging with
shareholders and institutional advisors in the coming year.
I hope that you will join the Board in approving the advisory resolution
on the Directors' remuneration report at the AGM on 6 October 2022.
Susan Kilsby
Non-Executive Director and Chair of the Remuneration Committee
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
Key features
– Normally reviewed annually on
– Provision of competitive
1 October
– Salaries take account of
external market and internal
employee context
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 the wider
workforce in the United
Kingdom
– 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
– Target opportunity is 100% of
salary and maximum is 200%
of salary
– Annual grant of performance
shares and share options
– CEO award up to 500% of
– Performance measures,
salary
weightings and stretching
targets are set by the
Remuneration Committee
– Subject to malus and clawback
provisions
– CFO award up to 480% of
salary
(% of salary for both CEO and
CFO described in performance
share equivalents)
– Executive Directors defer one-
– Performance measures,
third of earned bonus
payment into Diageo shares
held for three years, which first
took effect on the bonus for
the year ended 30 June 2021
– Remainder paid out in cash
after the end of the financial
year
– Allowances and benefits
– Targets will be set for the full
Planned for
year ending 30
June 2023
– 3% salary increase for the CEO
and CFO, slightly below the
annual salary budgets for the
wider workforce in the United
Kingdom and the United
States
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
Implementation
in year ended
30 June 2022
– 3% salary increase for the CEO
in line with wider workforce in
the 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
year
– For the year ending 30 June
2023, measures on net sales
growth, operating profit
growth and operating cash
conversion, 80% in total
weighted equally, with
remaining 20% on individual
objectives
- 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
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
– Performance measures on net
sales growth, relative TSR,
cumulative free cash flow,
profit before exceptional items
and tax and ESG
– Size of long-term incentive
award opportunity is
unchanged from prior year
– 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 was not in
her current role in 2019 and
does not hold a share option
award for that year
– Ensures alignment between the
interests of Executive Directors
and shareholders
– 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
G
O
V
E
R
N
A
N
C
E
– No change to shareholding
requirement
– As at 30 June 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. Exceptional salary
increases only (e.g. on
promotion) for the wider
workforce
– Allowances and benefits
– Targets set over two half-year
unchanged from prior year
– Company pension contribution:
– CEO 20% of salary
– CFO 20% of salary
periods
– Payout of 100% of maximum
for the financial element of the
plan
– Total payout of 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
– CEO shareholding 2,735% of
salary
– CFO (Kathryn Mikells)
at 10% of maximum
shareholding 868% of salary
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. There is a three-year deferral of 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 clawback periods for each element of remuneration are outlined below.
2022
2023
2024
2025
2026
2027
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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)
Organic growth in net sales
Cumulative free cash flow
CAGR
Threshold
3.75%
Midpoint
4.875%
Maximum
6.0%
Threshold
£8,600m
Midpoint
£9,100m
Maximum
£9,600m
Organic growth in profit before exceptional items and tax
Relative TSR ranking vs peer group
CAGR
Threshold
4.5%
Midpoint
7.5%
Maximum
10.5%
Threshold
9th (median)
Midpoint
–
Maximum
3rd (upper quintile)
Actual 8.9%
Actual £8,271m
Actual 8.8%
Actual 8th
Annual incentive (for the period 1 July 2021 to 30 June 2022)
Net sales growth
Threshold
5.2%
Target
8.2%
Maximum
11.2%
Threshold
8%
Target
14%
Maximum
20%
Operating profit growth
Actual 21.4%
Actual 26.3%
Diageo's share price growth
over the period 30 June 2019
to 30 June 2022
4%
Growth in dividend distribution
to shareholders in year ended
to 30 June 2022
5%
2022
2019
£3,351
£3,384
2022
2021
76.18p
72.55p
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 2022 is shown against the vesting outcome for the 2019 long-term incentive awards vesting in 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.
5-year vesting outcomes of long-term incentives
Executive Director vesting outcome (% of maximum)
5-year history of annual incentive payouts
Payout (% of maximum)
%
9
8
%
3
7
%
0
7
%
0
6
100
80
60
40
20
0
Annualised TSR %
30
%
5
.
7
2
%
0
1
%
3
9
2
.
%
0
1
%
5
.
1
6
%
3
9
5
.
24
18
12
6
0
100
80
60
40
20
0
%
5
7
%
0
6
2018
2019
2020
2021
2022
2018
2019
%
0
0
1
Operating profit growth %
30
%
0
0
1
24
18
12
6
0
2021
2022
-20
%
0
2020
Annual incentive payout (financial measures excluding
individual business objectives)
Organic operating profit growth (% on prior year)
Performance shares
Share options
Annualised total shareholder return over three-year long-term
incentive performance period
110
110
Diageo Annual Report 2022
Diageo Annual Report 2022
Pay for performance at a glance
Remuneration Committee Governance
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)
Organic growth in net sales
Cumulative free cash flow
CAGR
Threshold
3.75%
Midpoint
4.875%
Maximum
6.0%
Threshold
£8,600m
Midpoint
£9,100m
Maximum
£9,600m
Organic growth in profit before exceptional items and tax
Relative TSR ranking vs peer group
CAGR
Threshold
4.5%
Midpoint
7.5%
Maximum
10.5%
Threshold
9th (median)
Midpoint
–
Maximum
3rd (upper quintile)
Actual 8.9%
Actual £8,271m
Actual 8.8%
Actual 8th
Annual incentive (for the period 1 July 2021 to 30 June 2022)
Net sales growth
Threshold
5.2%
Target
8.2%
Maximum
11.2%
Threshold
8%
Target
14%
Maximum
20%
Operating profit growth
Actual 21.4%
Diageo's share price growth
over the period 30 June 2019
to 30 June 2022
Growth in dividend distribution
to shareholders in year ended
to 30 June 2022
4%
2022
2019
5%
2022
2021
£3,351
£3,384
Actual 26.3%
76.18p
72.55p
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 2022 is shown against the vesting outcome for the 2019 long-term incentive awards vesting in 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.
5-year vesting outcomes of long-term incentives
Executive Director vesting outcome (% of maximum)
5-year history of annual incentive payouts
Annualised TSR %
Payout (% of maximum)
Operating profit growth %
%
5
.
7
2
%
0
1
%
3
.
9
2
%
0
1
%
5
.
1
6
%
3
.
9
5
30
24
18
12
6
0
100
80
60
40
20
0
%
5
7
%
0
6
%
0
0
1
%
0
0
1
30
24
18
12
6
0
%
0
2020
2018
2019
2020
2021
2022
2018
2019
2021
2022
-20
%
9
8
%
3
7
%
0
7
%
0
6
100
80
60
40
20
0
Performance shares
Share options
Annualised total shareholder return over three-year long-term
individual business objectives)
incentive performance period
Organic operating profit growth (% on prior year)
Annual incentive payout (financial measures excluding
Remuneration Committee
Over the year, the Remuneration Committee has consisted of the
following independent Non-Executive Directors: Susan Kilsby, Melissa
Bethell, Valérie Chapoulaud-Floquet, 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 and
incentive outcomes. Members of the Committee attended all meetings
during the year which they were eligible to attend - full details are
disclosed in the corporate governance 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 incentivising irresponsible
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
in 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:
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;
Directors’ remuneration policy1
Directors' remuneration report (excluding
the policy)2
Total number of votes
Percentage of votes cast
Total number of votes
Percentage of votes cast
1.
2.
As shown on pages 89 – 94 of the 2020 Annual Report
As shown on pages 104 – 110 and 117 - 128 of the 2021 Annual Report
G
O
V
E
R
N
A
N
C
E
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, bonus deferral into shares and malus and clawback
provisions;
Predictability – the pay opportunity under different performance
scenarios is set out on page 116 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 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 trends and best practice, advice on the level of stretch in
the long-term incentive targets and periodic updates on the TSR of
Diageo and its peer companies for outstanding DLTIP performance
cycles. The fees paid to Deloitte in fiscal 22 for advice provided to the
Committee were £130,500 and were determined on a time and
expenses basis.
The Committee is satisfied that the Deloitte 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 at the 2020 AGM
and the Directors' remuneration report (excluding the policy) at the
2021 AGM.
For
Against
Total votes cast
1,644,443,671
121,538,951
1,765,982,622
93.12%
6.88%
100%
Abstentions
3,321,427
n/a
1,661,293,734
68,483,076
1,729,776,810
23,650,135
96.04%
3.96%
100%
n/a
The Committee was pleased with the level of support shown for the Directors' remuneration policy and Directors' remuneration report, and
appreciates the active participation of shareholders and their representative advisory bodies in consulting on executive remuneration matters.
110
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111
111
Directors' remuneration report continued
Approach to stakeholder engagement
The Committee is interested in the views of investors and maintains an
ongoing dialogue with a broad group of shareholders and institutional
advisors on remuneration matters. In July 2022, we wrote to our largest
shareholders and the 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
throughout the year and there are focus group sessions with other non-
executive directors. Feedback from management and the wider
workforce is received through the Your Voice employee engagement
survey and market specific pulse surveys. More information on
workforce engagement can be found on page 96 and page 118.
An overall review of wider workforce remuneration and policies is
tabled as a 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.
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 94-96
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.
4
0
%
5 %
10 %
%
5
1
1
0
%
20%
Incentives design and target-setting
Assessment of performance outcomes
Shareholder consultation & feedback
Individual remuneration decisions
External environment and
all-employee remuneration
Directors’ remuneration policy
& report
Link to Diageo
remuneration
principles
Key decision
Manage the return to annual
incentive plan target-setting.
In the previous year,
performance was measured
over two half-year periods
Setting targets for
performance shares and
share options granted under
the Diageo Long Term
Incentive Plan (DLTIP) in
September 2021
Payout under the annual
incentive plan for the
Executive Committee for the
year ended 30 June 2022
Vesting of performance
shares and share options
granted in September 2019 in
line with measured
achievements, with no
application of discretion
Link to corporate governance
principles
This decision represents a return to incentivising
executives to achieve stretching targets over an
annual period. Targets are aligned to short-term
critical milestones within the broader business plan.
(Proportionality)
The Committee determined that retaining the
measures already in place supported delivery of the
business strategy, provided a balanced set of
financial and non-financial measures, and
supported our alignment with company culture,
particularly the ESG component.
(Alignment with Strategy, Clarity, Simplicity)
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 creates shareholder
value.
(Proportionality)
The company’s performance has resulted in strong
returns to shareholders over the three-year
performance period and the Committee considered
the formulaic vesting outcome a fair reflection of
business performance which would appropriately
reward what has been a challenging and uncertain
three-year period.
(Proportionality)
Stakeholder engagement
As part of wider shareholder engagement, we noted the
return to the usual annual approach to target setting.
Shareholders were engaged regarding the performance
measures underpinning the 2021 plans. Through regular
global communication platforms, employees are made
aware of the business ambitions and focus, which aligns
with how our executives are incentivised over the longer
term. Those employees who also participate in
performance based long-term incentives are regularly
engaged regarding performance against targets.
The Committee considers the experience of the wider
workforce when making decisions on executive pay to
ensure there is clear alignment of principles.
The annual incentive payout for employees below the
Executive Committee also reflects strong holistic business
performance, and their bonus is derived from the same
measures that underpin the Executive Directors' annual
incentive.
As the Remuneration Committee was not minded to
exercise any discretion regarding the long-term incentive
outcome, there was no consultation on this matter.
Diageo’s remuneration
principles
Delivery of business
strategy
Creating sustainable, long-
term performance
Winning best
talent
Consideration of stakeholder
interests
112
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Directors' remuneration report continued
Approach to stakeholder engagement
Allocation of time
The Committee is interested in the views of investors and maintains an
ongoing dialogue with a broad group of shareholders and institutional
advisors on remuneration matters. In July 2022, we wrote to our largest
shareholders and the 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
throughout the year and there are focus group sessions with other non-
executive directors. Feedback from management and the wider
workforce is received through the Your Voice employee engagement
survey and market specific pulse surveys. More information on
workforce engagement can be found on page 96 and page 118.
An overall review of wider workforce remuneration and policies is
tabled as a 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.
%
5
1
1
0
%
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.
20%
FURTHER DETAILS ON PAGES 94-96
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.
5 %
10 %
4
0
%
Incentives design and target-setting
Assessment of performance outcomes
Shareholder consultation & feedback
Individual remuneration decisions
External environment and
all-employee remuneration
Directors’ remuneration policy
& report
Link to Diageo
remuneration
principles
Link to corporate governance
principles
This decision represents a return to incentivising
executives to achieve stretching targets over an
annual period. Targets are aligned to short-term
critical milestones within the broader business plan.
(Proportionality)
The Committee determined that retaining the
Shareholders were engaged regarding the performance
measures already in place supported delivery of the
measures underpinning the 2021 plans. Through regular
business strategy, provided a balanced set of
financial and non-financial measures, and
supported our alignment with company culture,
particularly the ESG component.
(Alignment with Strategy, Clarity, Simplicity)
global communication platforms, employees are made
aware of the business ambitions and focus, which aligns
with how our executives are incentivised over the longer
term. Those employees who also participate in
performance based long-term incentives are regularly
engaged regarding performance against targets.
The company’s performance has resulted in strong
The Committee considers the experience of the wider
returns to shareholders. By ensuring that executives
workforce when making decisions on executive pay to
are recognised for strong performance, the
ensure there is clear alignment of principles.
Remuneration Committee is able to motivate and
The annual incentive payout for employees below the
retain the very best talent, which creates shareholder
Executive Committee also reflects strong holistic business
value.
(Proportionality)
performance, and their bonus is derived from the same
measures that underpin the Executive Directors' annual
incentive.
The company’s performance has resulted in strong
As the Remuneration Committee was not minded to
returns to shareholders over the three-year
exercise any discretion regarding the long-term incentive
performance period and the Committee considered
outcome, there was no consultation on this matter.
the formulaic vesting outcome a fair reflection of
business performance which would appropriately
reward what has been a challenging and uncertain
three-year period.
(Proportionality)
Diageo’s remuneration
principles
Delivery of business
strategy
Creating sustainable, long-
term performance
Winning best
talent
Consideration of stakeholder
interests
Key decision
Manage the return to annual
incentive plan target-setting.
In the previous year,
performance was measured
over two half-year periods
Setting targets for
performance shares and
share options granted under
the Diageo Long Term
Incentive Plan (DLTIP) in
September 2021
Payout under the annual
incentive plan for the
Executive Committee for the
year ended 30 June 2022
Vesting of performance
shares and share options
granted in September 2019 in
line with measured
achievements, with no
application of discretion
Directors’ remuneration policy
This section of the report 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. The policy approved in September 2020 can be found on the company’s website https://
media.diageocms.com/diageo-corporate-media/media/c54dsk3z/256_directors-remuneration-report.pdf
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.
G
O
V
E
R
N
A
N
C
E
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.
Stakeholder engagement
As part of wider shareholder engagement, we noted the
return to the usual annual approach to target setting.
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.
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 in the year ended 30 June 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.
– The company will reduce the pension contribution for Ivan Menezes to 14% of salary, in line with the maximum company contribution to employees
in the United Kingdom, on 1 January 2023.
– The CFO, Lavanya Chandrashekar, who was appointed on 1 July 2021, receives a pension contribution of 14% of salary.
112
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113
113
Directors' remuneration report continued
Annual Incentive Plan (AIP)
Purpose and link to strategy
Incentivises 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.
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.
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Directors' remuneration report continued
Annual Incentive Plan (AIP)
Purpose and link to strategy
contribution to the company’s performance.
Operation
Incentivises delivery of Diageo’s financial and strategic targets over the year. Provides focus on key financial metrics and the individual’s
– 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
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
end of the vesting period.
Opportunity
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.
Diageo Long-Term Incentive Plan (DLTIP)
Purpose and link to strategy
Provides focus on delivering superior long-term returns to shareholders.
Operation
normally over a period of three years.
– An annual grant of performance shares and/or market-price share options which vest subject to a performance test and continued employment,
– 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.
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Diageo Long-Term Incentive Plan (DLTIP) 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.
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
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limited to, measures of sales, profit and cash.
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.
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 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 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.
Diageo Annual Report 2022
Diageo Annual Report 2022
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Directors' remuneration report continued
Policy considerations
Performance measures
Further details of the performance measures under the annual
incentive plan for the year ending 30 June 2023, as well as targets
under the long-term incentive plan for awards to be made in
September 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 page 130. 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 year
ending 30 June 2023.
Ivan Menezes
Minimum
100%100%
Target
36%36%
32%32%
32%32%
Maximum
13%13%
25%25%
62%62%
Maximum plus 50%
share price increase
10%10%
19%19%
Total $1,939 (£1,458)
Total $5,464 (£4,109)
Total $14,277 (£10,735)
71%71%
Total $18,684 (£14,048)
$’000
0
5,000
10,000
15,000
20,000
Salary, benefits and pension
Annual incentive
Long-term incentives
Lavanya Chandrashekar
Minimum
100%100%
Target
37%37%
32%32%
31%31%
Maximum
15%15%
25%25%
60%60%
Maximum plus 50%
share price increase
11%11%
19%19%
$’000
0
2,000
4,000
6,000
8,000
Salary, benefits and pension
Annual incentive
Long-term incentives
Total $1,174 (£883)
Total $3,142 (£2,362)
Total $8,003 (£6,017)
70%70%
Total $10,413 (£7,829)
10,000
12,000
Basis of calculation and assumptions:
The ‘Minimum’ scenario shows fixed remuneration only, i.e. base salary
for the year ending 30 June 2023, value of benefits received in year
ended 30 June 2022, and the pension benefits to be accrued over the
year ending 30 June 2023. These are the only elements of the
Executive Directors’ remuneration packages that are not subject to
performance conditions.
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Diageo Annual Report 2022
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 2022 of
£1 = $1.33.
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, 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-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), holding period and whether or not performance conditions
would 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.
Directors' remuneration report continued
Policy considerations
Performance measures
Further details of the performance measures under the annual
incentive plan for the year ending 30 June 2023, as well as targets
under the long-term incentive plan for awards to be made in
September 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 page 130. 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 year
Maximum
13%13%
25%25%
62%62%
Maximum plus 50%
share price increase
10%10%
19%19%
71%71%
Total $18,684 (£14,048)
$’000
0
5,000
10,000
15,000
20,000
ending 30 June 2023.
Ivan Menezes
Minimum
100%100%
Target
36%36%
32%32%
32%32%
Salary, benefits and pension
Annual incentive
Long-term incentives
Lavanya Chandrashekar
Minimum
100%100%
Target
37%37%
32%32%
31%31%
Maximum plus 50%
share price increase
11%11%
19%19%
Salary, benefits and pension
Annual incentive
Long-term incentives
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.
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 2022 of
£1 = $1.33.
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
Total $1,939 (£1,458)
Total $5,464 (£4,109)
global marketplace. The Committee will seek to align any
Total $14,277 (£10,735)
the discretion to offer a remuneration package which is necessary to
remuneration package with Diageo’s remuneration policy, but retains
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-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
Total $1,174 (£883)
determined on a comparable basis taking into account factors
Total $3,142 (£2,362)
Total $8,003 (£6,017)
70%70%
Total $10,413 (£7,829)
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), holding period and whether or not performance conditions
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.
Maximum
15%15%
25%25%
60%60%
$’000
0
2,000
4,000
6,000
8,000
10,000
12,000
would apply.
Basis of calculation and assumptions:
The ‘Minimum’ scenario shows fixed remuneration only, i.e. base salary
for the year ending 30 June 2023, value of benefits received in year
ended 30 June 2022, and the pension benefits to be accrued over the
year ending 30 June 2023. These are the only elements of the
Executive Directors’ remuneration packages that are not subject to
performance conditions.
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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
Ivan Menezes
Date of service contract
7 May 2013
Lavanya Chandrashekar
13 January 2021
The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of
Notice period
Mitigation
Annual Incentive Plan (AIP)
2020 Deferred Bonus Share Plan
(DBSP)
Diageo 2014 Long-Term Incentive
Plan (DLTIP)
Repatriation/other
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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.
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.
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.
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.
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 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).
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.
Diageo Annual Report 2022
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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 2022, the Remuneration Committee has considered:
• external factors impacting on business performance and reward
outcomes;
• the continued focus on appropriate and competitive pay positioning
around the world;
• ongoing commitment to inclusion and 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.
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.
More detail on engagement with shareholders in 2022 can be found on page 112.
Workforce engagement
Diageo runs annual employee engagement surveys, 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. In fiscal 22, the Chairman and the
non-executive directors met with 1,435 Diageo employees in 16
meetings, representing different levels, functions and regions. The
insights gathered from the sessions are reviewed and discussed
periodically at Board meetings, something that helps to inform key
board decisions. More detail on the approach and impact of workforce
engagement in the year ended 30 June 2022 is outlined in the
Corporate Governance report on page 96.
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. The sessions this year included a more detailed
discussion about the executive remuneration framework, executive
remuneration principles and structure and how executive pay aligns
with pay for the wider workforce.
Directors' remuneration report continued
Non-Executive Directors’ unexpired terms of
appointment
All non-executive directors are on three-year terms which are expected
to be extended up to a total of nine years. The date of initial
appointment to the Board and the point at which the current letter of
appointment expires for 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
Susan Kilsby
Melissa Bethell
22 July 2016
4 April 2018
30 June 2020
Valérie Chapoulaud-Floquet
1 January 2021
Sir John Manzoni
Lady Mendelsohn
Alan Stewart
Ireena Vittal
Karen Blackett
1 October 2020
1 September 2014
1 September 2014
2 October 2020
1 June 2022
AGM 2022
AGM 2024
AGM 2023
AGM 2024
AGM 2023
AGM 2023
AGM 2023
AGM 2023
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 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 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.
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$2,185
£1,265
$1,684
2022
£ '000
£1,277
£133
£209
£1,619
$1,661
$111
$413
£733
£429
£103
$1,699
$177
$278
$2,153
£1,231
£82
£306
£1,619
Ivan Menezes1
2022
$ '000
2021
£ 000
2021
$ 000
2022
£ '000
Fixed pay
Salary
Benefits2
Pension3
Total fixed pay6
Performance related pay
Annual incentive4
Long-term incentives5
Total variable pay6
Lavanya Chandrashekar1
2022
$ '000
$975
$571
$138
2021
'000
n/a
2021
'000
n/a
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 2022, and
how the Remuneration Committee intends to implement the proposed remuneration policy in the year ending 30 June 2023.
Single total figure of remuneration for Executive Directors (audited)
The table below details the Executive Directors’ remuneration for the year ended 30 June 2022.
Non-Executive Directors
Board
appointment expires
Date of appointment to the
Current letter of
outcomes;
Directors' remuneration report continued
Non-Executive Directors’ unexpired terms of
appointment
All non-executive directors are on three-year terms which are expected
to be extended up to a total of nine years. The date of initial
appointment to the Board and the point at which the current letter of
appointment expires for non-executive directors are shown in the table
below.
Javier Ferrán
Susan Kilsby
Melissa Bethell
Sir John Manzoni
Lady Mendelsohn
Alan Stewart
Ireena Vittal
Karen Blackett
Valérie Chapoulaud-Floquet
1 January 2021
22 July 2016
4 April 2018
30 June 2020
1 October 2020
1 September 2014
1 September 2014
2 October 2020
1 June 2022
AGM 2022
AGM 2024
AGM 2023
AGM 2024
AGM 2023
AGM 2023
AGM 2023
AGM 2023
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
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 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 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 2022, the Remuneration Committee has considered:
• external factors impacting on business performance and reward
• the continued focus on appropriate and competitive pay positioning
around the world;
• ongoing commitment to inclusion and 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.
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.
More detail on engagement with shareholders in 2022 can be found on page 112.
Workforce engagement
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. In fiscal 22, the Chairman and the
non-executive directors met with 1,435 Diageo employees in 16
meetings, representing different levels, functions and regions. The
insights gathered from the sessions are reviewed and discussed
periodically at Board meetings, something that helps to inform key
board decisions. More detail on the approach and impact of workforce
engagement in the year ended 30 June 2022 is outlined in the
Corporate Governance report on page 96.
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. The sessions this year included a more detailed
discussion about the executive remuneration framework, executive
remuneration principles and structure and how executive pay aligns
with pay for the wider workforce.
time when the relevant individual was not a Director of the company
Diageo runs annual employee engagement surveys, which give
and, in the opinion of the Committee, the payment was not in
employees the opportunity to give feedback and express their views on
consideration for the individual becoming a Director of the company.
a variety of topics including their own remuneration, working
Total single figure of remuneration6
£7,881
$10,482
£6,019
$8,125
£2,716
$3,613
Notes
1
Exchange
rate
The amounts shown in 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. Ivan Menezes and Lavanya
Chandrashekar are both paid in US dollars.
2 Benefits
3 Pension
4 Annual
incentive
The Benefits number includes the gross value of all taxable benefits. For Ivan Menezes, these include medical insurance (£15k), company car allowance (£16k),
contracted car service (£11.5k), financial counselling and tax return preparation (£86k), product allowance, life and long-term disability cover. Lavanya
Chandrashekar's benefits include flexible benefits allowance (£18k), travel allowance (£10k) and product allowance. £397k relates to one-time gross relocation
costs following her relocation from the US to the UK in July 2021.
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, the United Kingdom pension amount that accrued over the two years in excess of inflation is nil. Lavanya Chandrashekar became a Director and
started accruing benefits in the Supplemental Executive Retirement Plan (SERP) with effect from 1 July 2021.
The performance levels achieved for the financial measures underpinning the annual incentive plan for the year ended 30 June 2022 resulted in an outcome of
100% of maximum for the financial elements of the plan, which represented 80% of the maximum incentive opportunity. Taking account of performance against
individual objectives, the annual incentive payout is 93.75% of maximum for Ivan Menezes and 90.00% of maximum for 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.
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 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%.
Page
122
Page
120
Page
121
£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 that vested in September 2021 at 29.3% and 10% of maximum
respectively, and dividend shares arising on performance shares that vested in September 2021. Long-term incentives have been re-stated to reflect the share
price on the vesting date of $195.47 instead of the average three-month share price used in last year’s report of $186.00.
6 Totals
Some figures and sub-totals add up to slightly different amounts than the totals due to rounding.
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119
£2,413
£3,850
£6,262
$3,209
$5,120
$8,329
£2,308
£2,092
£4,400
$3,115
$2,825
$5,940
£1,320
£131
£1,450
$1,755
$174
$1,929
G
O
V
E
R
N
A
N
C
E
Directors' remuneration report continued
Looking back on 2022
Annual incentive plan (AIP) (audited)
AIP payout for the year ended 30 June 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
Payout opportunity (% maximum)
Net sales (% growth)2
Operating profit (% growth)2
Operating cash conversion3
Full year performance for 1 July 2021 - 30 June 2022
Individual business objectives
Weighting
Threshold
25%
5.2%
8.0%
94.0%
26.6%
26.6%
26.6%
80.0%
Target6
50%
8.2%
14.0%
99.0%
Maximum
Actual
100%
11.2%
20.0%
104.0%
21.4%
26.3%
105.1%
Measure (IBOs equally weighted) and target
Ivan Menezes Chief Executive
Weighting Result
20 %
Global Market Share Performance
- Grow or hold off-trade market share in 2/3rds of total net sales in
– We grew or held off-trade market share in over 85% of total net
sales in measured markets.6
measured markets.
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 and this
target has received limited assurance from PwC.
– 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.
Lavanya Chandrashekar Chief Financial Officer
20 %
Global Operating Margin
- Grow operating margin in line with overall AOP.
– Achieved the overall financial performance of the company versus
AOP in fiscal 22.
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.
Payout
(% of total AIP
opportunity)
26.6%
26.6%
26.6%
80.0%
Payout
(% of total AIP
opportunity)
13.75%
7.50%
6.25%
10.00%
5.00%
5.00%
Payout
Ivan Menezes4,5
Lavanya Chandrashekar4,5
Group
(weighted 80%)
IBO
(weighted 20%)
80.00%
80.00%
13.75%
10.00%
Total
(% max)
93.75%
90.00%
Total
(% salary)
187.50%
180.00%
Total
(’000)4 GBP
Total
(’000) USD
£2,413
£1,320
$3,209
$1,755
1. Performance against the AIP measures is calculated using 2022 budgeted exchange rates and 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 and incorporate the
new organic treatment of hyperinflationary economies.
3. For AIP purposes, 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 are stated at the budgeted exchange rate for the
year.
4. AIP payments are calculated using base salary as at 30 June 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
6
a period of three years in a nominee account. These shares will be acquired in September 2022. The number of shares will be disclosed in the 2023 remuneration report.
Internal estimates incorporating AC Nielsen, Association of Canadian Distillers, Dichter and Neira, Frontline, Intage, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, Ipsos and other
third-party providers.
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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.
Directors' remuneration report continued
Looking back on 2022
Annual incentive plan (AIP) (audited)
AIP payout for the year ended 30 June 2022
Group financial measures1
Measure
Payout opportunity (% maximum)
Net sales (% growth)2
Operating profit (% growth)2
Operating cash conversion3
Measure (IBOs equally weighted) and target
Ivan Menezes Chief Executive
Global Market Share Performance
measured markets.
Positive drinking
Full year performance for 1 July 2021 - 30 June 2022
Individual business objectives
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)
driving.
– Reach 450 million consumers with a dedicated responsible
drinking message from Diageo and our brands.
- Grow or hold off-trade market share in 2/3rds of total net sales in
sales in measured markets.6
– We grew or held off-trade market share in over 85% of total net
Programme and educate 375,000 people on the dangers of drink
– WSOTR is a hard-hitting new programme to support changes in
25%
5.2%
8.0%
94.0%
Target6
50%
8.2%
14.0%
99.0%
100%
11.2%
20.0%
104.0%
21.4%
26.3%
105.1%
26.6%
26.6%
26.6%
80.0%
Weighting Result
20 %
– 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 and this
target has received limited assurance from PwC.
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.
Lavanya Chandrashekar Chief Financial Officer
20 %
Global Operating Margin
- Grow operating margin in line with overall AOP.
– Achieved the overall financial performance of the company versus
AOP in fiscal 22.
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.
Payout
Ivan Menezes4,5
Lavanya Chandrashekar4,5
Group
IBO
(weighted 80%)
(weighted 20%)
80.00%
80.00%
13.75%
10.00%
Total
(% max)
93.75%
90.00%
Total
(% salary)
187.50%
180.00%
Total
(’000)4 GBP
Total
(’000) USD
£2,413
£1,320
$3,209
$1,755
1. Performance against the AIP measures is calculated using 2022 budgeted exchange rates and 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 and incorporate the
new organic treatment of hyperinflationary economies.
3. For AIP purposes, 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 are stated at the budgeted exchange rate for the
year.
4. AIP payments are calculated using base salary as at 30 June 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. These shares will be acquired in September 2022. The number of shares will be disclosed in the 2023 remuneration report.
6
Internal estimates incorporating AC Nielsen, Association of Canadian Distillers, Dichter and Neira, Frontline, Intage, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, Ipsos and other
third-party providers.
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Payout
(% of total AIP
opportunity)
26.6%
26.6%
26.6%
80.0%
Payout
(% of total AIP
opportunity)
13.75%
7.50%
6.25%
10.00%
5.00%
5.00%
Long-term incentive plans (LTIPs) (audited)
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 measured over a three-year period. Awards are granted on an annual basis in both performance shares and
share options. 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 2019, vesting in September 2022 (audited)
In September 2019, Ivan Menezes received share option awards under the DLTIP, with an exercise price of $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
Weighting
Threshold
Maximum
Actual
companies; and
G
O
V
E
R
N
A
N
C
E
• 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)
TSR ranking (out of 17)
Vesting (% max)
TSR peer group (16 companies)
1st, 2nd or 3rd
4th
5th
6th
100
95
75
65
7th
8th
9th
10th or below
55
45
20
0
AB Inbev
Heineken
Brown-Forman
Kimberly-Clark
Carlsberg
L'Oréal
Pernod Ricard
Procter & Gamble
Reckitt Benckiser
The Coca-Cola
Company
Colgate-Palmolive
Groupe Danone
Mondelēz International
Unilever
Nestlé
PepsiCo
Performance shares – awarded in September 2019, vesting in September 2022 (audited)
In September 2019, Ivan Menezes and 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 on the number of shares which vest.
Vesting outcome for 2019 performance share and share option awards in September 2022 (audited) - awards made to Ivan
Menezes.
For Ivan Menezes, the 2019 performance share award vested at 59.3% of maximum and the 2019 share option award vested at 61.5% of the
maximum, as detailed below:
Vesting of 2019 DLTIP5
Vesting if performance achieved (% maximum)
Organic net sales growth (CAGR)1
Adjusted profit before exceptional items and tax (CAGR)2
Cumulative free cash flow3
Vesting of performance shares (% maximum)
Adjusted profit before exceptional items and tax (CAGR)2
Relative total shareholder return4
Vesting of share options (% maximum)
Weighting
Threshold
Maximum
Actual
Vesting
(% maximum)5
20%
3.75%
4.5%
Midpoint
60%
4.875%
7.5%
100%
6.0%
10.5%
8.9%
8.8%
£8,600m
£9,100m
£9,600m
£8,271m
4.5%
9th
7.5%
–
10.5%
3rd
8.8%
8th
33.3%
33.3%
33.3%
50%
50%
33.3%
26.0%
0.0%
59.3%
39.0%
22.5%
61.5%
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 economies.
4. Relative Total Shareholder Return (TSR) is measured as the percentage growth in Diageo’s share price (assuming all dividends and capital distributions are re-invested) compared to the
TSR of a peer group of 16 international drinks and consumer goods companies. TSR calculations are based on an averaging period of 6 months and converted to a common currency (US
dollars). Calculation is performed and provided by Deloitte.
5. No discretion was exercised by the Remuneration Committee in determining the long-term incentive outcomes.
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Directors' remuneration report continued
Vesting outcome for 2019 performance share award in September 2022 (audited) - 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
Vesting if performance achieved (% maximum)
Organic net sales growth (CAGR)1
Adjusted profit before exceptional items and tax (CAGR)2
Cumulative free cash flow3
Vesting of performance shares (% maximum)
Weighting
Threshold
Maximum
Actual
Vesting
(% maximum)4
25%
3.75%
4.5%
Midpoint
62.5%
4.875%
7.5%
100%
6.0%
10.5%
8.9%
8.8%
£8,600m
£9,100m
£9,600m
£8,271m
33.3%
33.3%
33.3%
33.3%
26.5%
0.0%
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 economies.
4. No discretion was exercised by the Remuneration Committee in determining the long-term incentive outcomes
Summary of performance share awards and options vesting for Ivan Menezes and Lavanya Chandrashekar
Ivan Menezes
Performance shares
02/09/2019
Award
Award Date
Lavanya
Chandrashekar
Share options
02/09/2019
Performance shares
02/09/2019
Awarded
(ADRs)
38,827
38,827
1,444
Vesting
(% Max)
Vesting
(ADRs)
Option price
ADR price
Dividend
Equivalent
share
Estimated
Value
($'000)1
59.3%
23,024
—
$190.22
1,390
$4,644
61.5%
23,878
$170.28
$190.22
59.8%
863
—
$190.22
—
52
$476
$174
Estimated
Value
(£'000)
£3,492
£358
£131
1.
The value shown in the single figure of remuneration on page 119, outlined in more detail in the table above, is based on an average ADR price for the last three months of the financial
year.
Pension and benefits in the year ended 30 June 2022
Benefits provisions for the Executive Directors are in accordance with the information set out in the Directors’ remuneration policy table.
Pension arrangements (audited)
Ivan Menezes and 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 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, the company will reduce the
accrual rate further to 14% of salary on 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 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 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. Ivan Menezes has reached his normal
retirement age in the 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
Lavanya Chandrashekar.
The table below shows the pension benefits accrued by each Director to date. The accrued United Kingdom benefits for Ivan Menezes are annual
pension amounts, whereas the accrued US benefits for Ivan Menezes and Lavanya Chandreshekar are one-off cash balance amounts.
Executive Director
Ivan Menezes1
Lavanya Chandrashekar2
30 June 2022
30 June 2021
UK pension
£'000 p.a.
US benefit
£'000
UK pension
£'000 p.a.
75
Nil
9,251
302
75
Nil
US benefit
£'000
7,645
160
1.
Ivan Menezes' US benefits are higher at 30 June 2022 than at 30 June 2021 by £1,606k. £369k of which is due to pension benefits earned over the year (£209k of which is over and
above the increase due to inflation – as reported in the single figure of remuneration, see page 119). £57k of which is due to interest earned on his deferred US benefits over the year.
£1,180k of which is due to exchange rate movements over the year.
2. Lavanya Chandrashekar's US benefits are higher at 30 June 2022 than at 30 June 2021 by £142k. £103k of which is due to pension benefits earned over the year (£103k of which is over
and above the increase due to inflation – as reported in the single figure of remuneration, see page 119). £4k of which is due to interest earned on her deferred US benefits over the year;
and £35k of which is due to exchange rate movements over the year.
122
122
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Directors' remuneration report continued
basis from the threshold.
Vesting of 2019 DLTIP4
Vesting if performance achieved (% maximum)
Organic net sales growth (CAGR)1
Adjusted profit before exceptional items and tax (CAGR)2
Cumulative free cash flow3
Vesting of performance shares (% maximum)
Vesting outcome for 2019 performance share award in September 2022 (audited) - 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
Vesting
33.3%
26.5%
0.0%
59.8%
Estimated
Value
(£'000)
£3,492
£358
£131
Weighting
Threshold
Maximum
Actual
(% maximum)4
25%
3.75%
4.5%
Midpoint
62.5%
4.875%
7.5%
100%
6.0%
10.5%
8.9%
8.8%
£8,600m
£9,100m
£9,600m
£8,271m
33.3%
33.3%
33.3%
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 economies.
4. No discretion was exercised by the Remuneration Committee in determining the long-term incentive outcomes
Summary of performance share awards and options vesting for Ivan Menezes and Lavanya Chandrashekar
Award
Award Date
Vesting
(% Max)
Vesting
(ADRs)
Option price
ADR price
Dividend
Equivalent
share
Estimated
Value
($'000)1
Ivan Menezes
Performance shares
02/09/2019
59.3%
23,024
—
$190.22
1,390
$4,644
Share options
02/09/2019
61.5%
23,878
$170.28
$190.22
Performance shares
02/09/2019
59.8%
863
—
$190.22
—
52
$476
$174
Awarded
(ADRs)
38,827
38,827
1,444
1.
The value shown in the single figure of remuneration on page 119, outlined in more detail in the table above, is based on an average ADR price for the last three months of the financial
Lavanya
Chandrashekar
year.
Pension and benefits in the year ended 30 June 2022
Benefits provisions for the Executive Directors are in accordance with the information set out in the Directors’ remuneration policy table.
Pension arrangements (audited)
Ivan Menezes and 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 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, the company will reduce the
accrual rate further to 14% of salary on 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 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 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. Ivan Menezes has reached his normal
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
The table below shows the pension benefits accrued by each Director to date. The accrued United Kingdom benefits for Ivan Menezes are annual
pension amounts, whereas the accrued US benefits for Ivan Menezes and Lavanya Chandreshekar are one-off cash balance amounts.
1.
Ivan Menezes' US benefits are higher at 30 June 2022 than at 30 June 2021 by £1,606k. £369k of which is due to pension benefits earned over the year (£209k of which is over and
above the increase due to inflation – as reported in the single figure of remuneration, see page 119). £57k of which is due to interest earned on his deferred US benefits over the year.
£1,180k of which is due to exchange rate movements over the year.
2. Lavanya Chandrashekar's US benefits are higher at 30 June 2022 than at 30 June 2021 by £142k. £103k of which is due to pension benefits earned over the year (£103k of which is over
and above the increase due to inflation – as reported in the single figure of remuneration, see page 119). £4k of which is due to interest earned on her deferred US benefits over the year;
and £35k of which is due to exchange rate movements over the year.
30 June 2022
30 June 2021
UK pension
£'000 p.a.
US benefit
£'000
UK pension
£'000 p.a.
75
Nil
9,251
302
75
Nil
US benefit
£'000
7,645
160
retirement age in the DPS.
Lavanya Chandrashekar.
Executive Director
Ivan Menezes1
Lavanya Chandrashekar2
122
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The Normal Retirement Age applicable to each Director’s benefits depends on the pension scheme, as outlined below.
Executive Director
Ivan Menezes
Lavanya Chandrashekar
UK benefits
(DPS)
US benefits
(Cash Balance Plan)
60
n/a
65
65
US benefits
(BSP)
US benefits
(SERP)
6 months after leaving service
6 months after leaving service
6 months after leaving service, or age
55 if later
6 months after leaving service, or age 55 if later
Long-term incentive awards made during the year ended 30 June 2022 (audited)
On 3 September 2021, Ivan Menezes and 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 2021 to 30
June 2024.
The performance measures and targets for awards made in September 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 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 is the same as the 2022 award, outlined in more detail on page 130.
Performance shares
Share options
Organic profit
before exceptional
items and tax
growth
Organic net
sales 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
40%
40%
5%
5%
5%
2.5%
2.5%
50%
2021 DLTIP
Weighting
Relative TSR
50%
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
G
O
V
E
R
N
A
N
C
E
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
Ivan Menezes
Ivan Menezes
Lavanya Chandrashekar
Lavanya Chandrashekar
Date of grant
Plan
03/09/2021 DLTIP - share options
03/09/2021 DLTIP - performance shares
03/09/2021 DLTIP - share options
03/09/2021 DLTIP - performance shares
Share type
Awards made
during the year
Exercise
price
Face value
$'000
Face value
(% of salary)
ADR
ADR
ADR
ADR
36,675
36,675
$194.75
—
20,060
$194.75
20,060
—
$6,417
$6,417
$3,510
$3,510
375 %
375 %
360 %
360 %
The proportion of the awards outlined above that will vest is dependent on the achievement of performance conditions and continued employment,
and the actual value may be nil. The vesting outcomes will be disclosed in the 2024 Annual Report.
In accordance with the 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 ($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 ($194.75). The ADR price on the date of grant was $195.97.
Diageo Annual Report 2022
Diageo Annual Report 2022
123
123
12,554
701
30,294
0
38,827
43,377
36,675
475,516
3,832
1,064
19,584
20,060
80,240
Directors' remuneration report continued
Outstanding share plan interests (audited)
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
Sep 2017
Sep 2018
Sep 2015
Sep 2016
2018-2021
2015-2018
2016-2019
2017-2020
Ivan Menezes
DLTIP – share options10
DLTIP – share options10
DLTIP – share options3
DLTIP – share options3
Total vested but unexercised share options in Ords2
DLTIP - share options4,5
DLTIP - share options6
DLTIP - share options7
Total unvested share options subject to performance in Ords2
DLTIP - performance shares8
DLTIP - performance shares4,5
DLTIP - performance shares6
DLTIP - performance shares7
Total unvested shares subject to performance in Ords2
Sep 2020 2020-2023
Sep 2020 2020-2023
2019-2022
2019-2022
2021-2024
2021-2024
2018-2021
Sep 2019
Sep 2019
Sep 2018
Sep 2021
Sep 2021
2018
2019
2020
2021
2022
2023
2024
2021
2022
2023
2024
ADR
ADR
ADR
ADR
ADR
ADR
ADR
$104.93 29,895
$113.66 39,734
$134.06
14,098
$140.89 42,848
29,895
39,734
38,564
$170.28
$133.88
$194.75
38,827
43,377
0
36,675
ADR $139.41
ADR $174.72
ADR $133.70
ADR $195.97
42,848
38,827
43,377
0
36,675
Number of
shares/
options at
30 June
2022
0
0
14,098
4,284
73,528
38,827
43,377
36,675
475,516
Sep 2018
Lavanya Chandrashekar
DLTIP – share options3
DLTIP – share options3
Total vested but unexercised share options in Ords2
DLTIP – share options7
Total unvested share options subject to performance in Ords2
2021-2024
2018-2021
2018-2021
Sep 2018
Sep 2021
2021
2021
ADR
ADR
$140.89
3,832
$140.89
1,064
2024
ADR
$194.75
20,060
2018-2021
Sep 2018
DLTIP – performance shares
DLTIP – performance shares4,5
DLTIP – performance shares6
DLTIP – performance shares7
Total unvested shares subject to performance in Ords2
Sep 2019
Sep 2021
Sep 2020 2020-2023
2019-2022
2021-2024
DLTIP – restricted stock units
Sep 2018
2018-2021
DLTIP – restricted stock units
Sep 2018
2018-2021
DLTIP – restricted stock units
Sep 2019
2019-2022
DLTIP – restricted stock units
Total unvested shares not subject to performance in Ords2,9
Sep 2020 2020-2023
2021
2022
2023
2024
2021
2021
2022
2023
ADR $139.41
ADR $174.72
ADR $133.70
ADR $195.97
ADR $139.41
ADR $139.41
ADR $174.72
ADR $133.70
1,593
1,444
1,827
766
1,774
1,567
2,635
503
28
1,090
20,060
766
1,774
0
1,444
1,827
20,060
93,324
0
0
1,567
2,635
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.
3. The total number of share options granted under the DLTIP in September 2017 and 2018 showing as outstanding as at 30 June 2022 are vested but unexercised share options.
4. Performance shares and share options granted under the DLTIP in September 2019 and due to vest in September 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 119, since the performance period ended during the year ended
30 June 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).
6. Details of the performance conditions attached to DLTIP awards of performance shares and share options granted in 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 dangers of
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 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).
Ivan Menezes must retain the net shares resulting from the award that vested (including dividend equivalent shares) on 3 September 2021 until 3 September 2023 under the post vesting
retention period.
8.
9. Lavanya Chandrashekar was granted a number of restricted stock units prior to her appointment as CFO and joining the Board.
10. On 14 September 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
2021, Ivan Menezes exercised the remaining 6,666 share options under his 2015 award. The option price was $104.93 and the share price at exercise was $192.04. Ivan Menezes also
exercised 39,734 share options under 2016 award - the option price was $113.66 and the share price at exercise was $192.04.
124
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Diageo Annual Report 2022
Directors' remuneration report continued
Outstanding share plan interests (audited)
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
$104.93 29,895
$113.66 39,734
$134.06
14,098
$140.89 42,848
29,895
39,734
38,564
Plan name
Ivan Menezes
DLTIP – share options10
DLTIP – share options10
DLTIP – share options3
DLTIP – share options3
DLTIP - share options4,5
DLTIP - share options6
DLTIP - share options7
Sep 2015
2015-2018
Sep 2016
2016-2019
Sep 2017
2017-2020
Sep 2018
2018-2021
Sep 2019
2019-2022
Sep 2020 2020-2023
Sep 2021
2021-2024
Total vested but unexercised share options in Ords2
Total unvested share options subject to performance in Ords2
DLTIP - performance shares8
Sep 2018
2018-2021
DLTIP - performance shares4,5
Sep 2019
2019-2022
DLTIP - performance shares6
Sep 2020 2020-2023
DLTIP - performance shares7
Sep 2021
2021-2024
Total unvested shares subject to performance in Ords2
ADR
ADR
ADR
ADR
ADR
ADR
ADR
2018
2019
2020
2021
2022
2023
2024
2021
2022
2023
2024
ADR $139.41
ADR $174.72
ADR $133.70
ADR $195.97
$170.28
$133.88
$194.75
0
36,675
0
36,675
Lavanya Chandrashekar
DLTIP – share options3
DLTIP – share options3
Sep 2018
2018-2021
Sep 2018
2018-2021
2021
2021
ADR
ADR
$140.89
3,832
$140.89
1,064
Total vested but unexercised share options in Ords2
DLTIP – share options7
Sep 2021
2021-2024
2024
ADR
$194.75
20,060
12,554
701
30,294
0
Total unvested share options subject to performance in Ords2
DLTIP – performance shares
Sep 2018
2018-2021
DLTIP – performance shares4,5
Sep 2019
2019-2022
DLTIP – performance shares6
Sep 2020 2020-2023
DLTIP – performance shares7
Sep 2021
2021-2024
Total unvested shares subject to performance in Ords2
DLTIP – restricted stock units
Sep 2018
2018-2021
DLTIP – restricted stock units
Sep 2018
2018-2021
DLTIP – restricted stock units
Sep 2019
2019-2022
DLTIP – restricted stock units
Sep 2020 2020-2023
Total unvested shares not subject to performance in Ords2,9
2021
2022
2023
2024
2021
2021
2022
2023
ADR $139.41
ADR $174.72
ADR $133.70
ADR $195.97
ADR $139.41
ADR $139.41
ADR $174.72
ADR $133.70
503
28
1,090
20,060
766
1,774
Number of
shares/
options at
30 June
2022
0
0
14,098
4,284
73,528
38,827
43,377
36,675
475,516
38,827
43,377
36,675
475,516
3,832
1,064
19,584
20,060
80,240
0
1,444
1,827
20,060
93,324
0
0
1,567
2,635
16,808
38,827
43,377
42,848
38,827
43,377
1,593
1,444
1,827
766
1,774
1,567
2,635
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.
3. The total number of share options granted under the DLTIP in September 2017 and 2018 showing as outstanding as at 30 June 2022 are vested but unexercised share options.
4. Performance shares and share options granted under the DLTIP in September 2019 and due to vest in September 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 119, since the performance period ended during the year ended
of 10 years after the date of grant.
30 June 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).
6. Details of the performance conditions attached to DLTIP awards of performance shares and share options granted in 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 dangers of
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).
return (median-upper quintile).
retention period.
7. Details of the performance conditions attached to DLTIP awards of performance shares and share options 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
8.
Ivan Menezes must retain the net shares resulting from the award that vested (including dividend equivalent shares) on 3 September 2021 until 3 September 2023 under the post vesting
9. Lavanya Chandrashekar was granted a number of restricted stock units prior to her appointment as CFO and joining the Board.
10. On 14 September 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
2021, Ivan Menezes exercised the remaining 6,666 share options under his 2015 award. The option price was $104.93 and the share price at exercise was $192.04. Ivan Menezes also
exercised 39,734 share options under 2016 award - the option price was $113.66 and the share price at exercise was $192.04.
Directors’ shareholding requirements and share and other interests (audited)
The beneficial interests of the Directors who held office during the year ended 30 June 2022 (and their connected persons) in the ordinary shares (or
ordinary share equivalents) of the company are shown in the table below.
Chairman
Javier Ferrán7,9
Executive Directors
Ivan Menezes4,5,7
Lavanya Chandrashekar6,7
Non-Executive Directors
Susan Kilsby7
Melissa Bethell
Valérie Chapoulaud-Floquet
Sir John Manzoni
Lady Mendelsohn
Alan Stewart
Ireena Vittal
Karen Blackett8
Ordinary shares or equivalent1,2
30 June 2022 (or
date of departure,
if earlier)
26 July 2022
30 June 2021
(or date of
appointment if
later)
307,522
307,288
254,242
Shareholding
requirement
(% salary)3
Shareholding at
26 July 2022
(% salary)3
Shareholding
requirement met
1,078,566
1,078,566
1,145,894
6,228
6,228
500%
400%
3,093%
Yes
31% No - to be met
by July 2026
2,600
2,668
2,055
2,870
5,000
7,120
0
0
2,600
2,600
2,668
2,055
2,870
5,000
7,120
0
0
2,017
2,816
5,000
7,069
G
O
V
E
R
N
A
N
C
E
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 2022 and the last practicable date before publication of this report, being 26 July 2022, is outlined in the
table above.
3. Both the shareholding requirement and shareholding at 26 July 2022 are expressed as a percentage of base salary on 30 June 2022 and calculated using an average share price for the
year ended 30 June 2022 of £36.89.
4. In addition to the number of shares reported in the table above, Ivan Menezes holds 73,528 vested but unexercised share 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, Lavanya Chandrashekar holds 19,584 vested but unexercised share options.
7. Javier Ferrán, Ivan Menezes, 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 equivalents.
8. Karen Blackett joined the Board on 1 June 2022.
9. With regard to Javier Ferrán, included in the number of shares reported in the table above are 180,000 ordinary shares which Javier Ferrán transferred to his daughters as a gift during the
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.
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 2021 to the year ended 30 June 2022. There are no other significant distributions or payments of profit or cash flow.
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
Relative importance of spend on pay – percentage change
Distributions to shareholders
127.3%
2022
2021
1,754
3,986
Staff pay
13.2%
2022
2021
1,795
1,586
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Directors' remuneration report continued
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 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.
Diageo
FTSE 100
Chief Executive
total remuneration
Total shareholder return –
value of hypothetical £100 holding
Chief Executive total remuneration
(includes legacy LTIP awards) (£'000)
400
360
320
280
240
200
160
120
80
40
0
40,000
36,000
32,000
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
June 2012
June 2013
June 2014
June 2015
June 2016
June 2017
June 2018
June 2019
June 2020
June 2021
June 2022
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)
Annual incentive2
Share options2
Performance shares2
15,557
51%
100%
95%
7,312
9%
71%
55%
3,888
44%
0%
33%
4,156
65%
0%
31%
3,399
68%
0%
0%
8,995
70%
60%
70%
11,776
61.0%
73.1%
89.3%
2,273
6,019
7,881
0%
93.75%
93.75%
27.5%
10.0%
10.0%
29.3%
61.5%
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 on the next page sets out Diageo’s CEO pay ratios for the
year ended 30 June 2022. These CEO pay ratios provide a comparison of the Chief Executive’s total remuneration – converted into 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. Also shown are the salary and total remuneration for each quartile employee.
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Directors' remuneration report continued
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 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.
Total shareholder return –
value of hypothetical £100 holding
Chief Executive total remuneration
(includes legacy LTIP awards) (£'000)
Diageo
FTSE 100
Chief Executive
total remuneration
400
360
320
280
240
200
160
120
80
40
0
40,000
36,000
32,000
28,000
24,000
20,000
16,000
12,000
8,000
4,000
0
June 2012
June 2013
June 2014
June 2015
June 2016
June 2017
June 2018
June 2019
June 2020
June 2021
June 2022
Paul S Walsh
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
Ivan Menezes1
£'000
F13
£'000
F14
£'000
F15
£'000
F16
£'000
F17
£'000
F18
£'000
F19
£'000
F20
£'000
F21
£'000
F22
Chief Executive total
remuneration (includes
legacy LTIP awards)
Annual incentive2
Share options2
Performance shares2
2. % of maximum opportunity
15,557
51%
100%
95%
7,312
9%
71%
55%
3,888
44%
0%
33%
4,156
65%
0%
31%
3,399
68%
0%
0%
8,995
70%
60%
70%
11,776
61.0%
73.1%
89.3%
2,273
6,019
7,881
0%
93.75%
93.75%
27.5%
10.0%
10.0%
29.3%
61.5%
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.
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 on the next page sets out Diageo’s CEO pay ratios for the
year ended 30 June 2022. These CEO pay ratios provide a comparison of the Chief Executive’s total remuneration – converted into 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. Also shown are the salary and total remuneration for each quartile employee.
Year
2019
2020 1
2021
2022
2022
2022
Method
Option A2
Option A2
Option A2
Option A2
Total pay and benefits
Salary
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
265:1
50:1
127:1
157:1
£50,260
£30,765
208:1
38:1
100:1
122:1
£64,627
£43,920
166:1
31:1
79:1
96:1
£81,888
£52,833
1. 2021 CEO pay ratios have been updated to reflect the value of the updated 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 for the 2021 disclosure.
2. 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.
Methodology
Consistent with the approach for Diageo’s disclosure in previous years, the methodology used to identify the employees at each quartile for 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 117 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 2022
Strong business performance in the year ended 30 June 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 scheme – which
all UK employees are eligible to participate in. The median remuneration and resulting pay ratio for 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 due to a higher performance outcome under the 2019 long term incentive which vested this year compared to
the 2018 awards which vested last year.
Supporting our people and investing in talent
Our focus remains firmly on the wellbeing of our employees and in the year ended 30 June 2022, we continued to provide stability and support to
our workforce. Recently, we launched our Global Wellbeing Philosophy, outlining our commitment to creating an environment where people can
thrive, along with practical frameworks and tools to support our people in managing their wellbeing. In addition to local wellbeing initiatives, such as
free Wellbeing Day and Mental Health capability programmes, we are designing our new office spaces with Wellbeing at the heart. For example,
our new Global Headquarters in Soho, London is equipped with wellness and fitness classes and a quiet multi-faith room.
We remain committed to attracting and retaining the right talent. We carefully monitor our total remuneration levels for all roles to ensure we are
paying competitively and appropriately. Our incentive plans are designed to be easily understood and reward our people for supporting the
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.
Towards the end of 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 one-time, special
recognition payment of £1,000 gross (capped at 15% of local equivalent annual salary) as a thank you for their contribution and commitment
through challenging times. The Executive Committee will continue to monitor the macro-economic environment and impact on employees.
G
O
V
E
R
N
A
N
C
E
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Directors' remuneration report continued
Change in pay for Directors compared to wider workforce
The table below shows the percentage change in Directors’ remuneration and average remuneration of employees on an annual basis. Given the
small size of Diageo plc’s workforce, data for all employees of the group has also been included.
Year-on-year change in pay for Directors compared to the global average employee
Plc employee average1
Average global employee2
Executive Directors3
Ivan Menezes8
Lavanya Chandrashekar
Non-Executive Directors4
Melissa Bethell
Valérie Chapoulaud-Floquet6
Javier Ferrán (Chairman)
Susan Kilsby7
Sir John Manzoni6
Lady Mendelsohn
Alan Stewart
Ireena Vittal6
Karen Blackett
Salary
11.1 %
6.4 %
2.3 %
N/A5
2.3%
—
8.3%
3.8%
—
2.3%
4.7%
—
N/A5
2022
Bonus
25.8 %
38.4 %
Benefits
10.5 %
11.7 %
4.4 %
N/A5
59.5 %
N/A5
—
—
—
—
—
—
—
—
—
16.0%
—
28.8%
300.0%
—
0.0%
0.0%
—
N/A5
Salary
5.1%
—%
0.7%
N/A5
N/A5
N/A5
0.0%
9.6%
—
3.2%
2.4%
—%
—
2021
Bonus
N/A
278.8
N/A5
N/A5
Benefits
38.8%
12.6
Salary
7.5%
5.3%
2020
Bonus
(100.0%)
(67.8)
(10.7%)
N/A
2.7%
N/A
(100.0%)
N/A
—
—
—
—
—
—
—
—
—
—
—
0.0%
(87.7%)
—
0.0%
0.0%
0.0%
—
—
—
0.0%
37.3%
—
3.3%
2.5%
—%
—
—
—
—
—
—
—
—
—
—
Benefits
9.0%
6.9%
0.8%
N/A
—
—
0.0%
68.9%
—
0.0%
0.0%
0.0%
—
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 on page 155, 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 119) in US dollars, as both Ivan Menezes and Lavanya Chandrashekar are paid in this
currency.
4. Calculated using the fees and taxable benefits disclosed under non-executive directors’ remuneration in the table on the next page. Taxable benefits for 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. 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 (audited)
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 (audited)
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). 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. 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. In 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).
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Directors' remuneration report continued
Change in pay for Directors compared to wider workforce
The table below shows the percentage change in Directors’ remuneration and average remuneration of employees on an annual basis. Given the
small size of Diageo plc’s workforce, data for all employees of the group has also been included.
Year-on-year change in pay for Directors compared to the global average employee
Plc employee average1
Average global employee2
Executive Directors3
Ivan Menezes8
Lavanya Chandrashekar
Non-Executive Directors4
Melissa Bethell
Valérie Chapoulaud-Floquet6
Javier Ferrán (Chairman)
Susan Kilsby7
Sir John Manzoni6
Lady Mendelsohn
Alan Stewart
Ireena Vittal6
Karen Blackett
Salary
11.1 %
6.4 %
2.3 %
N/A5
2.3%
8.3%
3.8%
—
—
2.3%
4.7%
—
N/A5
2022
Bonus
25.8 %
38.4 %
Benefits
10.5 %
11.7 %
4.4 %
N/A5
59.5 %
N/A5
—
—
—
—
—
—
—
—
—
16.0%
28.8%
300.0%
—
—
0.0%
0.0%
—
N/A5
Salary
5.1%
—%
0.7%
N/A5
N/A5
N/A5
0.0%
9.6%
—
3.2%
2.4%
—%
—
2021
Bonus
N/A
278.8
N/A5
N/A5
Benefits
38.8%
12.6
Salary
7.5%
5.3%
2020
Bonus
(100.0%)
(67.8)
(10.7%)
N/A
2.7%
N/A
(100.0%)
N/A
0.0%
(87.7%)
0.0%
37.3%
—
—
—
—
—
—
—
—
—
—
—
—
0.0%
0.0%
0.0%
—
—
—
—
3.3%
2.5%
—%
—
—
—
—
—
—
—
—
—
—
Benefits
9.0%
6.9%
0.8%
N/A
—
—
—
0.0%
68.9%
0.0%
0.0%
0.0%
—
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 on page 155, 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 119) in US dollars, as both Ivan Menezes and Lavanya Chandrashekar are paid in this
currency.
4. Calculated using the fees and taxable benefits disclosed under non-executive directors’ remuneration in the table on the next page. Taxable benefits for 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
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
were incurred as travel was restricted as a result of the pandemic.
5. N/A refers to a nil value in the previous year, meaning that the year-on-year change cannot be calculated.
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.
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
Payments to former Directors (audited)
the 2021 Directors' remuneration report.
Payments for loss of office (audited)
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). 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. 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. In 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).
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. The Executive Directors and the Chairman also approved an increase in the 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.
Per annum fees
Chairman of the Board
Non-Executive Directors
Base fee
Senior Non-Executive Director
Chairman of the Audit Committee
Chairman of the Remuneration Committee
Non-Executive Directors’ remuneration for the year ended 30 June 2022 (audited)
January 2022
January 2021
£'000
650
£'000
600
101
30
35
35
98
30
30
30
G
O
V
E
R
N
A
N
C
E
Chairman
Javier Ferrán2
Non-Executive Directors
Susan Kilsby
Melissa Bethell
Valérie Chapoulaud-Floquet
Sir John Manzoni
Lady Mendelsohn
Alan Stewart
Ireena Vittal
Karen Blackett3
Fees £'000
Taxable benefits1 £'000
Total £'0004
2022
2021
2022
2021
2022
2021
650
600
164
100
100
100
100
134
100
8
158
98
49
74
98
128
73
n/a
2
5
1
5
1
1
1
1
—
1
1
1
1
1
1
1
1
n/a
652
601
169
102
105
102
102
135
102
9
159
99
50
75
99
129
74
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 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 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.
3. Karen Blackett was appointed to the Board on 1 June 2022.
4. Some figures add up to slightly different totals due to rounding.
128
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Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
129
129
Directors' remuneration report continued
Looking ahead to 2023
Salary increases and pension reductions for the
year ending 30 June 2023
In May 2022, the Remuneration Committee reviewed base salaries for
senior management and agreed the following 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 wider workforce.
Salary at 1 October ('000)
Base salary
Ivan Menezes
Lavanya Chandrashekar
2022
$1,763
2021
$1,711
2022
$1,004
2021
$975
% increase (over previous year)
3 %
3 %
3 %
—
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 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;
• 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 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.
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 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 121.
The performance share element of the DLTIP applies to the Executive
Committee and the top 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. 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 2022.
It is intended that a DLTIP award of 500% of base salary will be made
to Ivan Menezes in September 2022, comprising 375% of salary in
performance shares and 125% of salary in market price share options.
It is intended that a DLTIP award of 480% of salary will be made to
Lavanya Chandrashekar in September 2022, comprising 360% of
salary in performance shares and 120% of salary in market price share
options. In performance share equivalents; one market price option is
valued at one-third of a performance share.
The table below summarises the annual DLTIP awards to Ivan Menezes
and Lavanya Chandrashekar to be made in September 2022.
Long-term incentive awards to be made in the year
ending 30 June 2023
The long-term incentive plan measures are reviewed annually by the
Remuneration Committee and are selected to reward long-term
Grant value (% salary)
Performance shares
Share options
Total
Chief Executive
Chief Financial Officer
Performance share equivalents (1 share: 3 options)
375 %
125 %
500 %
360 %
120 %
480 %
Performance conditions for long-term incentive awards to be made in the year ending 30 June 2023
Performance shares
Share options
Environmental, social & governance (ESG)
Organic net
sales (CAGR)
Organic profit before
exceptional items
and tax (CAGR)
Greenhouse
gas
reduction1
Water
efficiency
Positive
drinking
% Female
leaders
Weighting (% total)
Maximum
Midpoint
Threshold
40%
8.5%
6.5%
4.5%
40%
12.0%
8.5%
5.0%
5%
17.6%
14.2%
10.7%
5%
12.1%
9.2%
6.3%
5%
4.0m
3.3m
2.6m
2.5%
47%
46%
45%
1.
Further context for the 2022 long-term incentive greenhouse gas reduction targets is set out on page 31.
% Ethnically
diverse
leaders
2.5%
44%
43%
42%
Vesting
schedule
Relative Total
Shareholder Return
Cumulative free
cash flow (£m)
Vesting
schedule
100%
50.0%
50.0%
100%
3rd and above £9,450
60%
—
£8,550
20% 9th and above £7,650
100%
100%
60%
20%
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Diageo Annual Report 2022
Directors' remuneration report continued
Looking ahead to 2023
Salary increases and pension reductions for the
year ending 30 June 2023
In May 2022, the Remuneration Committee reviewed base salaries for
senior management and agreed the following 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 wider workforce.
Salary at 1 October ('000)
Base salary
Ivan Menezes
Lavanya Chandrashekar
2022
2021
2022
2021
$1,763
$1,711
$1,004
$975
% increase (over previous year)
3 %
3 %
3 %
—
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
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 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 121.
The performance share element of the DLTIP applies to the Executive
Committee and the top 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. Each goal is weighted equally:
design for Executive Directors in the year ending 30 June 2023 will
• reduction in greenhouse gas emissions;
comprise the following performance measures and weightings, with
• improvement in water efficiency;
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
• 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).
price and dividend income not including exceptional items or
Awards are calculated on the basis of a six-month average share price
exchange;
for the period ending 30 June 2022.
• 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.
It is intended that a DLTIP award of 500% of base salary will be made
to Ivan Menezes in September 2022, comprising 375% of salary in
performance shares and 125% of salary in market price share options.
It is intended that a DLTIP award of 480% of salary will be made to
Lavanya Chandrashekar in September 2022, comprising 360% of
The Committee has discretion to adjust the payout to reflect underlying
salary in performance shares and 120% of salary in market price share
business performance and any other relevant factors.
options. In performance share equivalents; one market price option is
Details of the targets for the year ending 30 June 2023 will be disclosed
valued at one-third of a performance share.
retrospectively in next year’s annual report on remuneration, by which
The table below summarises the annual DLTIP awards to Ivan Menezes
time they will no longer be deemed commercially sensitive by the
and Lavanya Chandrashekar to be made in September 2022.
Board.
Long-term incentive awards to be made in the year
ending 30 June 2023
The long-term incentive plan measures are reviewed annually by the
Remuneration Committee and are selected to reward long-term
Grant value (% salary)
Performance shares
Share options
Total
Chief Executive
Chief Financial Officer
Performance share equivalents (1 share: 3 options)
375 %
125 %
500 %
360 %
120 %
480 %
Performance conditions for long-term incentive awards to be made in the year ending 30 June 2023
Performance shares
Share options
Organic profit before
Greenhouse
% Ethnically
Organic net
sales (CAGR)
exceptional items
and tax (CAGR)
gas
reduction1
Water
efficiency
Positive
drinking
% Female
leaders
Environmental, social & governance (ESG)
Weighting (% total)
Maximum
Midpoint
Threshold
40%
8.5%
6.5%
4.5%
40%
12.0%
8.5%
5.0%
5%
17.6%
14.2%
10.7%
5%
12.1%
9.2%
6.3%
5%
4.0m
3.3m
2.6m
2.5%
47%
46%
45%
1.
Further context for the 2022 long-term incentive greenhouse gas reduction targets is set out on page 31.
diverse
leaders
2.5%
44%
43%
42%
Vesting
schedule
100%
Relative Total
Cumulative free
Shareholder Return
cash flow (£m)
Vesting
schedule
50.0%
50.0%
100%
3rd and above £9,450
60%
—
£8,550
20% 9th and above £7,650
100%
100%
60%
20%
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Diageo Annual Report 2022
Diageo Annual Report 2022
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 27 July 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.
PwC has audited the report to the extent required by the regulations,
being the sections headed Single total figure of remuneration for
Executive Directors (and notes), Payments to former Directors, Payments
for loss of office, Annual incentive plan (AIP), Long-term incentive plans
(LTIPs), Pension arrangements, Directors’ shareholding requirements
and share and other interests, Outstanding share plan interests, Non-
Executive Directors’ remuneration and Key management personnel
related party transactions.
The Directors' remuneration report (excluding the policy) is subject to
shareholder approval at the AGM on 6 October 2022; terms defined in
this remuneration report are used solely herein.
G
O
V
E
R
N
A
N
C
E
Additional information
Emoluments and share interests of senior
management
The total emoluments for the year ended 30 June 2022 of the Executive
Directors and the Executive Committee members (together, the senior
management) of Diageo comprising base salary, annual incentive
plan, share incentive plan, termination payments and other benefits
were £23.9 million (2021 – £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 £19.1 million. In addition, they were granted 718,092
performance-based share options under the Diageo Long-Term
Incentive Plan (DLTIP) during the year at a weighted average share
price of 3,609 pence, exercisable by 2031. In addition, they were
granted 435 options over ordinary shares under the UK savings-related
share options scheme (SAYE). They were also awarded 680,438
performance shares under the DLTIP in September 2021, which will vest
in three years subject to the relevant performance conditions. A further
award of 142,977 restricted shares subject to performance, and 127,867
restricted shares not subject to performance were also granted during
the year.
Senior management options over ordinary shares
At 26 July 2022, the senior management had an aggregate beneficial
interest in 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 (£)
Ivan Menezes
Lavanya Chandrashekar
Other1
549,044
99,824
1,349,935
1. Other members of the Executive Committee
30.67
33.73
30.14
Exercise period
2020-2031
2021-2031
2015-2031
Key management personnel related party
transactions (audited)
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
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.
Diageo Annual Report 2022
Diageo Annual Report 2022
131
131
Directors' report
Directors’ report
The Directors present the Directors’ report for the year ended 30 June
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.
Directors
The Directors of the company who currently serve are shown in the
section ‘Board of Directors’ on pages 84 and 85 and 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 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
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132
Diageo Annual Report 2022
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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.
Related party transactions
Transactions with related parties are disclosed in note 21 to the
consolidated financial statements.
Major shareholders
At 30 June 2022, the following substantial interests (3% or more) in the
company’s ordinary share capital (voting securities) had been notified
to the company:
Shareholder
BlackRock Investment
Management (UK) Limited
(indirect holding)
Capital Research and
Management Company
(indirect holding)
Massachusetts Financial
Services Company (indirect
holding)
Number of
ordinary shares
Percentage
of issued ordinary
share (excluding
treasury shares)
Date of notification of
interest
147,296,928
5.89% 3 December 2009
124,653,096
4.99%
28 April 2009
114,036,646
4.95%
1 June 2022
The company has not been notified of any other substantial interests in
its securities since 30 June 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.
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 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
Directors' report
Directors’ report
2022.
Company status
The Directors present the Directors’ report for the year ended 30 June
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.
Diageo plc is a public limited liability company incorporated in England
and Wales with registered number 23307 and registered office and
Related party transactions
principal place of business at 16 Great Marlborough Street, London
Transactions with related parties are disclosed in note 21 to the
W1F 7HS, United Kingdom. It is the ultimate holding company of the
consolidated financial statements.
group, a full list of whose subsidiaries, partnerships, associates, joint
ventures and joint arrangements is set out in Note 10 to the financial
Major shareholders
statements set out on pages 200-204.
Directors
The Directors of the company who currently serve are shown in the
section ‘Board of Directors’ on pages 84 and 85 and 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 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
At 30 June 2022, the following substantial interests (3% or more) in the
company’s ordinary share capital (voting securities) had been notified
to the company:
Shareholder
BlackRock Investment
Management (UK) Limited
(indirect holding)
Capital Research and
Management Company
(indirect holding)
Massachusetts Financial
Services Company (indirect
holding)
Number of
ordinary shares
Percentage
of issued ordinary
share (excluding
treasury shares)
Date of notification of
interest
147,296,928
5.89% 3 December 2009
124,653,096
4.99%
28 April 2009
114,036,646
4.95%
1 June 2022
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
The company has not been notified of any other substantial interests in
its securities since 30 June 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
Directors who held office at the date of approval of this Directors’ report
in a change of control of the company.
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
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
The corporate governance statement, prepared in accordance with
issues as resourcing, data protection, human rights, health, safety and
rule 7.2 of the Financial Conduct Authority’s Disclosure Guidance and
wellbeing. These policies and standards seek to ensure that the
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
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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 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 sterling and the US dollar will affect the US
dollar equivalent of the 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.
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), 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, 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
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activities (e.g. expenses associated with the 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
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.
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 (b), represented by 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 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
Diageo Annual Report 2022
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133
Repurchase of shares
Subject to authorisation by special 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.
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 is accompanied by the relevant share certificate and
such other evidence of 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 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).
Directors' report continued
• 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 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 meeting of 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
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 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.
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Repurchase of shares
Subject to authorisation by special 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.
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 is accompanied by the relevant share certificate and
such other evidence of 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 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).
Directors' report continued
• 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 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;
• 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 meeting of the holders of
and
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
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 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.
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)
Agreements with controlling shareholders
Contracts of significance
Details of long-term incentive schemes
Directors’ indemnities and compensation
Dividends
Location in Annual Report
Not applicable
Not applicable
Directors’ remuneration report
Directors’ remuneration report - Additional information; Consolidated financial
statements - note 21 Related party transactions
Group financial review; Consolidated financial statements - Unaudited financial
information
Engagement with employees
Corporate governance report - Workforce engagement statement
Engagement with suppliers, customers and others
Corporate governance report - Stakeholder engagement
Events post 30 June 2022
Financial risk management
Future developments
Greenhouse gas emissions
Interest capitalised
Non-pre-emptive issues of equity for cash (including in respect of major
unlisted subsidiaries)
Parent participation in a placing by a listed subsidiary
Consolidated financial statements - note 23 Post balance sheet events
Consolidated financial statements - note 16 Financial instruments and risk
management
Chairman’s statement; Chief Executive’s statement; Our market dynamics
Sustainability performance; Responding to climate-related risks; Additional
information for shareholders - External limited assurance of selected ESG
performance data
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Not applicable
Not applicable
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
Research and development
Review of the business and principal risks and uncertainties
Repurchase of shares; Consolidated financial statements - note 18 Equity
Additional Disclosures - Research and development; Consolidated financial
statements - note 3 Operating costs
Chief Executive’s statement; Our principal risks and risk management; Responding to
climate-related risks; Business reviews
Share capital - structure, voting and other rights
Share capital - employee share plan voting rights
Shareholder waivers of dividends
Shareholder waivers of future dividends
Sustainability and responsibility
Waiver of emoluments by a director
Waiver of future emoluments by a director
Consolidated financial statements - note 18 Equity
Consolidated financial statements - note 18 Equity
Consolidated financial statements - note 18 Equity
Consolidated financial statements - note 18 Equity
Sustainability performance; Responding to climate-related risks
Not applicable
Not applicable
The Directors’ report of Diageo plc for the year ended 30 June 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 Tom Shropshire, the Company Secretary, on 27 July 2022.
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Financial Statements
Introduction and contents
Introduction
The group consolidated financial statements, which have been
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards (IFRS) adopted by the UK,
IFRSs as adopted by the European Union, and IFRSs as issued by the
International Accounting Standards Board (IASB), give a true and fair
view of the assets, liabilities, financial position and profit of the group.
The financial statements of Diageo plc (the company) are
prepared in accordance with the Companies Act 2006 and in
accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).
The financial statements also include ’Unaudited Financial
Information’ which is not required by the relevant accounting
standards or other regulations but management believes this section
provides important additional information.
Contents
Independent auditors' report to the
members of Diageo plc
Primary statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Accounting information and policies
1. Accounting information and policies
Results for the year
2. Segmental information
3. Operating costs
4. Exceptional items
5. Finance income and charges
6. Investments in associates and joint ventures
7. Taxation
Operating assets and liabilities
8. Acquisition and sale of businesses and brands
and purchase of non-controlling interests
9. Intangible assets
10. Property, plant and equipment
11. Biological assets
12. Leases
13. Other investments
14. Post employment benefits
15. Working capital
Risk management and capital structure
16. Financial instruments and risk management
17. Net borrowings
18. Equity
Other financial statements disclosures
19. Contingent liabilities and legal proceedings
20. Commitments
21. Related party transactions
22. Principal group companies
23. Post balance sheet events
Financial statements of the company
Unaudited financial information
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147
148
149
150
152
155
156
158
158
160
163
166
170
171
171
172
172
177
179
186
187
191
193
193
194
194
195
205
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Financial Statements
Financial Statements
Introduction and contents
Introduction and contents
Introduction
Introduction
The group consolidated financial statements, which have been
The group consolidated financial statements, which have been
prepared in accordance with international accounting standards in
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
conformity with the requirements of the Companies Act 2006 and
International Financial Reporting Standards (IFRS) adopted by the UK,
International Financial Reporting Standards (IFRS) adopted by the UK,
IFRSs as adopted by the European Union, and IFRSs as issued by the
IFRSs as adopted by the European Union, and IFRSs as issued by the
International Accounting Standards Board (IASB), give a true and fair
International Accounting Standards Board (IASB), give a true and fair
view of the assets, liabilities, financial position and profit of the group.
view of the assets, liabilities, financial position and profit of the group.
The financial statements of Diageo plc (the company) are
The financial statements of Diageo plc (the company) are
prepared in accordance with the Companies Act 2006 and in
prepared in accordance with the Companies Act 2006 and in
accordance with Financial Reporting Standard 101 Reduced Disclosure
accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).
Framework (FRS 101).
The financial statements also include ’Unaudited Financial
The financial statements also include ’Unaudited Financial
Information’ which is not required by the relevant accounting
Information’ which is not required by the relevant accounting
standards or other regulations but management believes this section
standards or other regulations but management believes this section
provides important additional information.
provides important additional information.
Contents
Contents
Independent auditors' report to the
Independent auditors' report to the
members of Diageo plc
members of Diageo plc
Primary statements
Primary statements
Consolidated income statement
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of changes in equity
Consolidated statement of cash flows
Consolidated statement of cash flows
Accounting information and policies
Accounting information and policies
1. Accounting information and policies
1. Accounting information and policies
Results for the year
Results for the year
2. Segmental information
2. Segmental information
3. Operating costs
3. Operating costs
4. Exceptional items
4. Exceptional items
5. Finance income and charges
5. Finance income and charges
6. Investments in associates and joint ventures
6. Investments in associates and joint ventures
7. Taxation
7. Taxation
Operating assets and liabilities
Operating assets and liabilities
8. Acquisition and sale of businesses and brands
8. Acquisition and sale of businesses and brands
and purchase of non-controlling interests
and purchase of non-controlling interests
9. Intangible assets
9. Intangible assets
10. Property, plant and equipment
10. Property, plant and equipment
11. Biological assets
11. Biological assets
12. Leases
12. Leases
13. Other investments
13. Other investments
14. Post employment benefits
14. Post employment benefits
15. Working capital
15. Working capital
Risk management and capital structure
Risk management and capital structure
16. Financial instruments and risk management
16. Financial instruments and risk management
17. Net borrowings
17. Net borrowings
18. Equity
18. Equity
Other financial statements disclosures
Other financial statements disclosures
19. Contingent liabilities and legal proceedings
19. Contingent liabilities and legal proceedings
20. Commitments
20. Commitments
21. Related party transactions
21. Related party transactions
22. Principal group companies
22. Principal group companies
23. Post balance sheet events
23. Post balance sheet events
Financial statements of the company
Financial statements of the company
Unaudited financial information
Unaudited financial information
137
137
145
145
146
146
147
147
148
148
149
149
150
150
152
152
155
155
156
156
158
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158
158
160
160
163
163
166
166
170
170
171
171
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172
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172
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179
186
186
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191
191
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Independent auditors' report to the members of Diageo plc
1. Our unmodified opinion
In our opinion:
• Diageo plc’s (Diageo) group financial statements and company financial statements (the financial statements) give a true and fair view of the
state of the group’s and of the company’s affairs as at 30 June 2022 and of the group’s profit and the group’s cash flows for the year then
ended;
• the group financial statements have been properly prepared in accordance with United Kingdom - adopted international accounting standards;
• the group financial statements have been properly prepared in accordance with both International Financial Reporting Standards (IFRS) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and with IFRS as issued by the International Accounting
Standards Board;
• the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Audit Committee.
What we audited
We have audited the financial statements, included within the Annual Report 2022 (the Annual Report), which comprise: the consolidated and
company balance sheets as at 30 June 2022; the consolidated income statement and consolidated statement of comprehensive income, the
consolidated statement of cash flows, and the consolidated and company statements of changes in equity for the year then ended; and the notes to
the financial statements, which include a description of the significant accounting policies.
Basis for our opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under ISAs
(UK) are further described in ‘The scope of an audit and our responsibility’ section of this report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Our independence
We remained independent of Diageo in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
United Kingdom, which includes the Financial Reporting Council’s (FRC) Ethical Standard, as applicable to listed public interest entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to Diageo.
Other than those disclosed in note 3(b) to the group financial statements, we have provided no non-audit services to Diageo or its controlled
undertakings in the period under audit.
PwC was initially appointed by you on 15 October 2015 and has acted for seven uninterrupted years. This is the second year that Richard Oldfield
has acted as your Senior Statutory Auditor. There were no changes in senior team members as a result of professional rotation requirements.
Our independence, including the nature and size of non-audit services provided was reviewed during the year by the Audit Committee.
2. Our audit
The scope of an audit and our responsibility
An audit has an important role in providing confidence in the financial statements that are provided by companies to their members. The scope of
an audit is sometimes not fully understood. We believe that it is important that you understand the scope and the concept of materiality in order to
understand the assurance that this opinion provides. A description of the scope of an audit is provided on the FRC’s website at www.frc.org.uk/
auditors responsibilities; we recommend that you read this description carefully. It is also important that you understand the inherent limitations of the
audit, for example:
• the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion; and
• our audit testing includes, in a limited number of cases, testing of complete populations of certain transactions and balances, predominantly
using data auditing techniques, e.g. the testing of manual journals and the deactivation of leaver accounts on key applications. However, in most
cases it involves selecting a limited number of items for testing. In some situations, we target particular items for testing based on their size or risk
characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is
selected. An approach based upon sampling may not identify all issues.
Our objectives are to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue a report to you that includes our opinion. This opinion is not over any particular number or disclosure. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions you take on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We designed procedures in line with our responsibilities,
capable of detecting material misstatements caused by such irregularities, albeit these are subject to the inherent limitations discussed above. We
focused on any known and potential instances of non-compliance with laws and regulations that could give rise to a material misstatement in the
financial statements, including, but not limited to, the Companies Act 2006, the Listing Rules, international tax legislation and anti-bribery legislation.
Examples of the procedures which we performed included:
• gaining an understanding of the legal and regulatory framework applicable to Diageo and the alcoholic beverage industry, and considering the
risk of acts by Diageo which are contrary to applicable laws and regulations, including fraud;
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• performing inquiries of senior management, including but not limited to members of the Group Executive and regional and market chief financial
officers, to identify areas of possible breaches of laws and regulations;
• reviewing correspondence with regulators, including the Securities and Exchange Commission and the tax authorities in Diageo’s key markets;
• assessing matters reported through the group’s whistleblowing programme and the results of management’s investigation in so far as they
related to the financial statements;
• challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to key audit
matters;
• agreeing the financial statement disclosures to underlying supporting documentation; and
• inspecting correspondence with legal advisors and internal audit reports in so far as they related to the financial statements.
We also evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of
management override of internal controls. We determined that the principal risks were related to posting inappropriate journal entries to, for
example, suppress expenses such as trade spend to improve financial performance, and management bias in accounting estimates. We did not
identify any key audit matters specific to irregularities, including fraud.
How we structured our audit
Partners and staff from eighteen countries across the PwC network have spent more than 79,000 hours supporting this report, which in addition to
the opinion provides amongst other things, information on how we approached the audit and how it changed from the previous year.
We tailored our audit taking into account the structure of the group and company, the accounting processes and controls, and the alcoholic
beverage industry. There were three important aspects of our work;
1) Audit work performed on individual business units
We received opinions from ten PwC member firms which had been appointed as the auditors of twenty two group business units, either in relation to
all of the financial information or specific accounts and balances. This included eighteen operating business units and four treasury business units.
We also obtained reporting from a non-PwC member firm over the financial information of Moët Hennessy, the group’s principal associate.
In November 2021 we hosted a meeting for senior staff from PwC member firms involved in the audit. Unfortunately, due to the ongoing Covid travel
restrictions impacting several of the PwC teams, this meeting was again held virtually. At this meeting we considered developments specific to
Diageo, key audit matters and changes to the audit necessitated by the Covid pandemic, such as alternative virtual procedures if attendance at
physical inventory counts was not possible.
We issued formal, written instructions to each business unit audit team setting out the work to be performed by each of them. We were in active
dialogue throughout the year with the teams responsible for these audits; this included consideration of how they planned and performed their work.
When travel restrictions eased, senior team members visited the business unit audit teams in Brazil, Great Britain, Hungary, India, North America and
Turkey. These gave us an opportunity to discuss the audit with local teams, but also to meet directly with management to hear about the market and
Diageo opportunities and challenges. Senior team members also attended via video conference the final audit meetings for certain business units,
including Great Britain, Ireland, Turkey, Global Business Operations (GBO) Budapest, India, Moët Hennessy, and North America. During these
meetings, the findings reported by each of the audit teams were discussed. We evaluated the sufficiency of the audit evidence obtained through
discussions with each team and a review of the audit working papers.
2) Audit work performed at shared service centres
A significant amount of operational processes which are critical to financial reporting are undertaken in the GBO captive shared business service
centres in Hungary, Colombia and India. PwC teams in these locations tested controls and transactions which supported the financial information for
many of the twenty two business units in scope, to ensure that adequate audit evidence was obtained.
3) Audit procedures undertaken at a group level and on the company.
We ensured that appropriate further audit work was undertaken at a group level and for the company. This work included auditing, for example,
the consolidation of the group’s results, the preparation of the financial statements, certain disclosures within the Directors’ Remuneration Report,
litigation provisions and exposures and management’s entity level and oversight controls relevant to financial reporting. We also performed work
centrally for the audit of technology systems and IT general controls, goodwill and intangible assets, taxation, and one-off transactions, including
acquisitions, undertaken during the year. This work was supported by team members who are based in Budapest.
Collectively, these three areas of work covered 74% of group net sales, 84% of group total assets, and 67% of group profit before exceptional items
and tax (PBET, (as defined in note 4)).
In planning our audit, we continued to embrace technology and innovation in the audit process to drive quality and efficiency. For the first time, we
applied optical character recognition in support of our testing and robotic process automation for some confirmations. This built on our use of data
analytics to identify fraud and technology tools to allow for more precise scoping, risk assessment, more targeted testing and real time reporting of
work performed by different teams providing full visibility to management and the Audit Committee.
Changes to the audit in 2022
The audit approach remained broadly unchanged.
We considered the changing relative contribution of individual business units in determining which ones should be included within the audit scope.
Consequently, more work has been undertaken in Mexico and Ireland, with reduced procedures in Brazil, Nigeria and Kenya. The group’s business
in Spain was removed from scope.
As required by auditing standards, our team undertook procedures which were deliberately unexpected and could not have reasonably been
predicted by Diageo’s management. As an example performing procedures over balances and transactions which otherwise wouldn’t have been
subject to audit procedures due to their size and rotating the inventory count locations and approach year on year. The results of these procedures
were consistent with our expectations.
In executing our audit we were particularly mindful of the changing economic conditions. The impact of the Covid pandemic abated in most
markets during the year, with recovery in both the on-trade and travel channels. However, the business was impacted by supply challenges in
certain markets, inflationary pressure and the Russian invasion of Ukraine as described in the Strategic Review. We considered how these factors
were included in future cash flows used in management’s models supporting key audit areas and management's assessment of going concern.
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• performing inquiries of senior management, including but not limited to members of the Group Executive and regional and market chief financial
officers, to identify areas of possible breaches of laws and regulations;
• reviewing correspondence with regulators, including the Securities and Exchange Commission and the tax authorities in Diageo’s key markets;
• assessing matters reported through the group’s whistleblowing programme and the results of management’s investigation in so far as they
Materiality
The scope of our audit was influenced by our application of the concept of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on
the individual financial statement line items (FSLIs) and disclosures and in evaluating the effect of misstatements.
• challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to key audit
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group
Company
Overall materiality
£239m (2021: £184m).
How we determined it
5% of the PBET
Our approach has changed from F21, where we used a three year
average PBET to compensate for the increased volatility and
uncertainty in the trading environment. With the business
expected to continue to deliver more stabilised, pre-pandemic
levels of trading, we believe that a return to a single year
benchmark is appropriate.
Why we believe this is
appropriate
In assessing Diageo’s performance you exclude items identified by
management as exceptional. Therefore, we have used PBET
which is a generally accepted auditing benchmark.
£278m (2021: £291m),
For the purposes of the group audit, we lowered materiality to
£20m (2021: £16m), other than for those balances which were
eliminated on consolidation.
0.5% of net assets.
This approach has not changed compared to the prior year.
We consider a net asset measure to reflect the nature of the
company, which primarily acts as a holding company for the
group’s investments and holds certain liabilities on the balance
sheet.
The results of procedures performed over balances and
transactions contributing to the group’s overall results were used
to support our group opinion.
We asked each of the teams reporting on the individual business units to work to assigned materiality levels which reflected the size of the
operations they audited. This materiality will differ from that used in any external audit of the separate financial statements for these business units,
for example the materiality used for the company balance sheet and reported profit was lowered to £20m for the group audit as described in the
table. The range of materiality allocated across the business unit audits was between £14m (Diageo Capital BV) and £135m (North America).
When planning the audit, we considered if multiple misstatements may exist which, when aggregated, could exceed our overall materiality level. In
order to reduce the risk of multiple misstatements which could aggregate to this amount we used a lower level of materiality, known as performance
materiality to identify the individual balances, classes of transactions and disclosures that were subject to audit. Our performance materiality was
£179m (2021: £138m) for the group and £209m (2021: £218m) for the company, being 75% of overall materiality for both the group and company
financial statements. In determining this amount, we considered a number of factors - the history of low levels of misstatements, our risk assessment
and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
Where the audit identified any items that were not reflected appropriately in the financial information, we considered these items carefully to assess if
they were individually or in aggregate material. We agreed with the Audit Committee that we would report to them misstatements identified which
were qualitatively significant or which exceeded £11m (2021: £9m). This amount was £10m for the company (2021: £9m). The Audit Committee was
responsible for deciding whether adjustments should be made to the financial statements in respect of those items. The Directors concluded that all
items which remained unadjusted were not material to the financial statements, either individually or in aggregate. We agreed with their conclusion.
Key audit matters
We attended each of the six Audit Committee and sub-Committee meetings held during the year. Part of each meeting involved a private discussion
without management present. We also met with the Chair of the Audit Committee on an ad-hoc basis. During these various conversations we
discussed our observations on a variety of accounting matters, for example the accounting for acquisitions, disposals and the winding down of
Russia based activities, and observations on controls over financial reporting. In December, the Audit Committee discussed and challenged the audit
plan. The plan included the matters which we considered presented the highest risk to the audit (the key audit matters) and other information on our
audit approach such as our approach to specific balances, the audit of journals and where the latest technology would be used to obtain better
quality audit evidence.
The areas of highest risk for the group audit and where we focused most effort and resources are substantially unchanged from the prior year. They
were;
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• Valuation of goodwill and brand intangible assets;
• Uncertain tax positions in respect of direct and indirect taxes in India and Brazil; and
• Valuation of post employment benefit liabilities.
To help you understand their impact on the audit, we have listed them in order of decreasing audit effort. Most of these areas are common with
other international beverage companies. The key audit matters above are consistent with last year.
We have included in an appendix to this report an explanation of each item, why it was discussed and how the audit approach was tailored to
address the concerns.
As the sponsoring company for the United Kingdom schemes, valuation of post employment benefit liabilities was also identified as a key audit
matter for the company.
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related to the financial statements;
matters;
• agreeing the financial statement disclosures to underlying supporting documentation; and
• inspecting correspondence with legal advisors and internal audit reports in so far as they related to the financial statements.
We also evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements, including the risk of
management override of internal controls. We determined that the principal risks were related to posting inappropriate journal entries to, for
example, suppress expenses such as trade spend to improve financial performance, and management bias in accounting estimates. We did not
identify any key audit matters specific to irregularities, including fraud.
How we structured our audit
Partners and staff from eighteen countries across the PwC network have spent more than 79,000 hours supporting this report, which in addition to
the opinion provides amongst other things, information on how we approached the audit and how it changed from the previous year.
We tailored our audit taking into account the structure of the group and company, the accounting processes and controls, and the alcoholic
beverage industry. There were three important aspects of our work;
1) Audit work performed on individual business units
We received opinions from ten PwC member firms which had been appointed as the auditors of twenty two group business units, either in relation to
all of the financial information or specific accounts and balances. This included eighteen operating business units and four treasury business units.
We also obtained reporting from a non-PwC member firm over the financial information of Moët Hennessy, the group’s principal associate.
In November 2021 we hosted a meeting for senior staff from PwC member firms involved in the audit. Unfortunately, due to the ongoing Covid travel
restrictions impacting several of the PwC teams, this meeting was again held virtually. At this meeting we considered developments specific to
Diageo, key audit matters and changes to the audit necessitated by the Covid pandemic, such as alternative virtual procedures if attendance at
physical inventory counts was not possible.
We issued formal, written instructions to each business unit audit team setting out the work to be performed by each of them. We were in active
dialogue throughout the year with the teams responsible for these audits; this included consideration of how they planned and performed their work.
When travel restrictions eased, senior team members visited the business unit audit teams in Brazil, Great Britain, Hungary, India, North America and
Turkey. These gave us an opportunity to discuss the audit with local teams, but also to meet directly with management to hear about the market and
Diageo opportunities and challenges. Senior team members also attended via video conference the final audit meetings for certain business units,
including Great Britain, Ireland, Turkey, Global Business Operations (GBO) Budapest, India, Moët Hennessy, and North America. During these
meetings, the findings reported by each of the audit teams were discussed. We evaluated the sufficiency of the audit evidence obtained through
discussions with each team and a review of the audit working papers.
2) Audit work performed at shared service centres
A significant amount of operational processes which are critical to financial reporting are undertaken in the GBO captive shared business service
centres in Hungary, Colombia and India. PwC teams in these locations tested controls and transactions which supported the financial information for
many of the twenty two business units in scope, to ensure that adequate audit evidence was obtained.
3) Audit procedures undertaken at a group level and on the company.
We ensured that appropriate further audit work was undertaken at a group level and for the company. This work included auditing, for example,
the consolidation of the group’s results, the preparation of the financial statements, certain disclosures within the Directors’ Remuneration Report,
litigation provisions and exposures and management’s entity level and oversight controls relevant to financial reporting. We also performed work
centrally for the audit of technology systems and IT general controls, goodwill and intangible assets, taxation, and one-off transactions, including
acquisitions, undertaken during the year. This work was supported by team members who are based in Budapest.
Collectively, these three areas of work covered 74% of group net sales, 84% of group total assets, and 67% of group profit before exceptional items
and tax (PBET, (as defined in note 4)).
In planning our audit, we continued to embrace technology and innovation in the audit process to drive quality and efficiency. For the first time, we
applied optical character recognition in support of our testing and robotic process automation for some confirmations. This built on our use of data
analytics to identify fraud and technology tools to allow for more precise scoping, risk assessment, more targeted testing and real time reporting of
work performed by different teams providing full visibility to management and the Audit Committee.
Changes to the audit in 2022
The audit approach remained broadly unchanged.
We considered the changing relative contribution of individual business units in determining which ones should be included within the audit scope.
Consequently, more work has been undertaken in Mexico and Ireland, with reduced procedures in Brazil, Nigeria and Kenya. The group’s business
in Spain was removed from scope.
As required by auditing standards, our team undertook procedures which were deliberately unexpected and could not have reasonably been
predicted by Diageo’s management. As an example performing procedures over balances and transactions which otherwise wouldn’t have been
subject to audit procedures due to their size and rotating the inventory count locations and approach year on year. The results of these procedures
were consistent with our expectations.
In executing our audit we were particularly mindful of the changing economic conditions. The impact of the Covid pandemic abated in most
markets during the year, with recovery in both the on-trade and travel channels. However, the business was impacted by supply challenges in
certain markets, inflationary pressure and the Russian invasion of Ukraine as described in the Strategic Review. We considered how these factors
were included in future cash flows used in management’s models supporting key audit areas and management's assessment of going concern.
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Climate change
As explained in the “Sustainability performance” and “Responding to climate related risks” section of the Strategic Report, the group has also
performed a risk assessment to understand the potential impacts of climate change upon key selected businesses, in particular how increasing
global temperatures are likely to impact operations due to water scarcity and policy changes impacting input costs. As part of our audit, we made
enquiries of management to understand the extent of the potential impact of climate change on the group’s business and the financial statements,
including reviewing management’s climate change risk assessment and climate change scenarios which were prepared with support from an
external expert. We used our knowledge of the group and we engaged with our own climate change experts to evaluate the risk assessment
performed by management, and to understand the scenarios considered.
By their nature financial statements present historical information which does not fully capture future events. We did determine that the key areas in
the financial statements that are more likely to be materially impacted by climate change are those areas that are based on estimated future cash
flows. As a result, we considered in particular how climate risks and the impact of the Society 2030 commitments would impact the assumptions
made in the forecasts prepared by Diageo used in the group’s impairment analysis (See also key audit matter on Valuation of goodwill and brand
intangibles) and for going concern purposes. We challenged how longer term physical chronic risks had been considered such as water scarcity
from water stress together with the impacts of chronic weather on agricultural supply chains, and shorter term transitional risks such as the
introduction of carbon taxes. Our procedures did not identify any material impact on our audit for the year ended 30 June 2022. We ensured that
the assumptions used in preparation of the financial statements are consistent with the Task Force on Climate-related Financial Disclosures (TCFD)
disclosure.
The accuracy of Diageo’s progress against its Society 2030 metrics set out on pages 35-38 is not included within the scope of this audit. We were
engaged separately to provide independent limited assurance to the Directors over some of these metrics marked with the symbol ∆. The
independent limited assurance report, which explains the scope of our work and the limited procedures undertaken is included in the ESG Reporting
Index 2022 on page 202. Limited assurance varies significantly and is substantially less in scope than that of our financial audit, which provides
reasonable assurance.
3. Our conclusions relating to going concern
Based on the work we have performed, which included understanding and evaluating the group’s financial forecasts and the stress testing of
liquidity, assessing and testing risk factors that could impact the going concern basis of accounting such as the, potential impact of future
pandemics, the impacts of the increasing inflationary environment and testing amounts of debt maturing during the assessment period, we have not
identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and
the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for
issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to
the group's and the company's ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the United Kingdom Corporate Governance Code (the Code), we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and those of the Directors with respect to going concern are described in the relevant sections of this report.
4. Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information, which includes reporting based on the TCFD recommendations. Our opinion on the financial
statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
Our responsibility is to read the other information and, in doing so, consider whether it is materially inconsistent with the financial statements or our
knowledge obtained during the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on this work, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the
year ended 30 June 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors' Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance with the provisions of the Code specified for our review.
Having completed this work, we have concluded that each of the following elements of the corporate governance statement is materially consistent
with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The Directors’ confirmation on page 98 that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
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• The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting
in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so over a period of
at least twelve months from the date of approval of the financial statements;
• The Directors’ explanation on page 98 as to their assessment of the group's and company’s prospects, the period this assessment covers and why
the period is appropriate;
• The Directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its
liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions;
• The Directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and company's position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the Directors’ statement relating to the company’s compliance with the
Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Our review was substantially less in scope than an audit and consisted of making inquiries and considering the Directors’ process supporting their
statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are
consistent with the knowledge and understanding of the group and company and their environment obtained in the course of the audit.
5. Exception reporting required by the Companies Act 2006
We are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not
visited by us; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• the company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
6. Responsibilities of the Directors
As explained more fully in the Responsibility Statement set out on page 98, the Directors are responsible for the preparation of the financial
statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also
responsible for the internal controls they determine are necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the group’s and the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Our responsibilities and those of the Directors with respect to going concern are described in the relevant sections of this report.
The Directors are also responsible for the other information referenced above.
7. Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Richard Oldfield (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
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Climate change
As explained in the “Sustainability performance” and “Responding to climate related risks” section of the Strategic Report, the group has also
performed a risk assessment to understand the potential impacts of climate change upon key selected businesses, in particular how increasing
global temperatures are likely to impact operations due to water scarcity and policy changes impacting input costs. As part of our audit, we made
enquiries of management to understand the extent of the potential impact of climate change on the group’s business and the financial statements,
including reviewing management’s climate change risk assessment and climate change scenarios which were prepared with support from an
external expert. We used our knowledge of the group and we engaged with our own climate change experts to evaluate the risk assessment
performed by management, and to understand the scenarios considered.
By their nature financial statements present historical information which does not fully capture future events. We did determine that the key areas in
the financial statements that are more likely to be materially impacted by climate change are those areas that are based on estimated future cash
flows. As a result, we considered in particular how climate risks and the impact of the Society 2030 commitments would impact the assumptions
made in the forecasts prepared by Diageo used in the group’s impairment analysis (See also key audit matter on Valuation of goodwill and brand
intangibles) and for going concern purposes. We challenged how longer term physical chronic risks had been considered such as water scarcity
from water stress together with the impacts of chronic weather on agricultural supply chains, and shorter term transitional risks such as the
introduction of carbon taxes. Our procedures did not identify any material impact on our audit for the year ended 30 June 2022. We ensured that
the assumptions used in preparation of the financial statements are consistent with the Task Force on Climate-related Financial Disclosures (TCFD)
The accuracy of Diageo’s progress against its Society 2030 metrics set out on pages 35-38 is not included within the scope of this audit. We were
engaged separately to provide independent limited assurance to the Directors over some of these metrics marked with the symbol ∆. The
independent limited assurance report, which explains the scope of our work and the limited procedures undertaken is included in the ESG Reporting
Index 2022 on page 202. Limited assurance varies significantly and is substantially less in scope than that of our financial audit, which provides
reasonable assurance.
3. Our conclusions relating to going concern
Based on the work we have performed, which included understanding and evaluating the group’s financial forecasts and the stress testing of
liquidity, assessing and testing risk factors that could impact the going concern basis of accounting such as the, potential impact of future
pandemics, the impacts of the increasing inflationary environment and testing amounts of debt maturing during the assessment period, we have not
identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group's and
the company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for
disclosure.
issue.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to
the group's and the company's ability to continue as a going concern.
In relation to the Directors’ reporting on how they have applied the United Kingdom Corporate Governance Code (the Code), we have nothing
material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it
appropriate to adopt the going concern basis of accounting.
4. Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information, which includes reporting based on the TCFD recommendations. Our opinion on the financial
statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
Our responsibility is to read the other information and, in doing so, consider whether it is materially inconsistent with the financial statements or our
knowledge obtained during the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on this work, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors' Report for the
year ended 30 June 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors' Report.
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
Directors’ Remuneration
2006.
Corporate governance statement
The Listing Rules require us to review the Directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance with the provisions of the Code specified for our review.
Having completed this work, we have concluded that each of the following elements of the corporate governance statement is materially consistent
with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The Directors’ confirmation on page 98 that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
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Appendix: Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of potential material misstatement (whether or not due to fraud) identified by us. They include those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the audit team. These
matters, and any comments we make on the results of our procedures, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Valuation of goodwill and brand intangible assets
Nature of the Key Audit Matter
Impacted FSLIs
Goodwill
2022
£2,287m
2021
£1,957m
Brands
£7,361m
Goodwill and brand assets have been recognised as a result of acquisitions, in the current and prior years. Diageo is required to perform testing of
the recoverable amounts of these assets at least annually because they are deemed to have an indefinite life and are therefore not amortised.
Testing was primarily performed by Diageo over goodwill on a number of cash generating units (CGUs) in December and impairment triggers
considered up to the balance sheet date. The testing of brands was principally undertaken in May. The testing, with supporting sensitivity analyses,
calculated the value in use (VIU) and fair value less cost of disposal and compared this amount to the carrying value. VIU was predominantly used,
unless management believed that fair value less cost of disposal would result in a higher recoverable amount for any CGU or brand.
Certain CGUs and brands were identified as being sensitive to reasonable changes in significant assumptions and are required to be disclosed in
the Annual Report.
£7,896m
The methodology in the models is dependent on various assumptions, both short term and long term in nature. These assumptions, which are
subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by management and market
data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and for which variations
had the most significant impact on the recoverable amounts. Specifically, these included Diageo’s strategic plans for fiscal years 2023 to 2025
including long-term growth rates, discount rates, and forecasts for volume, revenue and operating profit growth.
The discussion with the Audit Committee
We discussed with the Audit Committee the methodologies and significant assumptions used to determine the recoverable values of the goodwill
in India and Turkey, the Yeni Raki and Bell’s brands, and the portfolio of USL (India) brands.
These discussions covered;
• the macroeconomic environment;
• the consistency of assumptions of the impact of climate change with the impacts discussed in the unaudited disclosures on pages 47-56 in
response to the recommendations of the Task Force for Climate related Financial Disclosures;
• reasonably possible alternatives for significant assumptions for example, the appropriateness of discount rates relative to our independently
calculated ranges; and
• the disclosures made in relation to goodwill and brand intangibles, including the use of sensitivity analysis to explain estimation uncertainty and
the conditions that would result in an impairment being recognised.
How our audit addressed the Key Audit Matter
We validated the appropriateness of the CGUs selected.
We evaluated the design and operation of controls in place over the VIU methodologies and selection of the significant assumptions used.
We agreed the mathematical accuracy of the calculations, to estimate the VIU.
In respect of the significant assumptions, our testing included the following:
• challenging the achievability of management’s strategic plan and the prospects for Diageo’s businesses for the specific CGUs and brands. We
paid particular attention to achievement of the strategic plan and gross margin targets in light of the elevated inflationary environment;
• obtaining and evaluating evidence where available for critical data relating to significant assumptions of forecasted growth, from a
combination of historic experience, external market (e.g. IWSR, the leading source of data and analysis on the global beverage alcohol market)
and other financial information;
• assessing whether the cash flows included in the model were in accordance with the accounting standard IAS 36 - “Impairment of Assets”;
• independently assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
• determining a reasonable range for the discount rate used within the model, with the assistance of PwC valuation experts, and comparing it to
the discount rate used by management.
We evaluated and tested the disclosures made in the Annual Report in relation to goodwill and indefinite-lived intangibles, and considered them to
be reasonable.
Relevant references in Annual Report
Note 1(e) - Critical accounting estimates and judgements
Note 4 - Exceptional items
Note 9 - Intangible assets
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Appendix: Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and
include the most significant assessed risks of potential material misstatement (whether or not due to fraud) identified by us. They include those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the audit team. These
matters, and any comments we make on the results of our procedures, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Valuation of goodwill and brand intangible assets
Nature of the Key Audit Matter
Impacted FSLIs
Goodwill
Brands
2022
£2,287m
£7,896m
2021
£1,957m
£7,361m
Goodwill and brand assets have been recognised as a result of acquisitions, in the current and prior years. Diageo is required to perform testing of
the recoverable amounts of these assets at least annually because they are deemed to have an indefinite life and are therefore not amortised.
Testing was primarily performed by Diageo over goodwill on a number of cash generating units (CGUs) in December and impairment triggers
considered up to the balance sheet date. The testing of brands was principally undertaken in May. The testing, with supporting sensitivity analyses,
calculated the value in use (VIU) and fair value less cost of disposal and compared this amount to the carrying value. VIU was predominantly used,
unless management believed that fair value less cost of disposal would result in a higher recoverable amount for any CGU or brand.
Certain CGUs and brands were identified as being sensitive to reasonable changes in significant assumptions and are required to be disclosed in
the Annual Report.
The methodology in the models is dependent on various assumptions, both short term and long term in nature. These assumptions, which are
subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by management and market
data. The significant assumptions that we focused our audit on were those with greater levels of management judgement and for which variations
had the most significant impact on the recoverable amounts. Specifically, these included Diageo’s strategic plans for fiscal years 2023 to 2025
including long-term growth rates, discount rates, and forecasts for volume, revenue and operating profit growth.
We discussed with the Audit Committee the methodologies and significant assumptions used to determine the recoverable values of the goodwill
in India and Turkey, the Yeni Raki and Bell’s brands, and the portfolio of USL (India) brands.
The discussion with the Audit Committee
These discussions covered;
• the macroeconomic environment;
• the consistency of assumptions of the impact of climate change with the impacts discussed in the unaudited disclosures on pages 47-56 in
response to the recommendations of the Task Force for Climate related Financial Disclosures;
• reasonably possible alternatives for significant assumptions for example, the appropriateness of discount rates relative to our independently
calculated ranges; and
• the disclosures made in relation to goodwill and brand intangibles, including the use of sensitivity analysis to explain estimation uncertainty and
the conditions that would result in an impairment being recognised.
How our audit addressed the Key Audit Matter
We validated the appropriateness of the CGUs selected.
We agreed the mathematical accuracy of the calculations, to estimate the VIU.
In respect of the significant assumptions, our testing included the following:
We evaluated the design and operation of controls in place over the VIU methodologies and selection of the significant assumptions used.
• challenging the achievability of management’s strategic plan and the prospects for Diageo’s businesses for the specific CGUs and brands. We
paid particular attention to achievement of the strategic plan and gross margin targets in light of the elevated inflationary environment;
• obtaining and evaluating evidence where available for critical data relating to significant assumptions of forecasted growth, from a
combination of historic experience, external market (e.g. IWSR, the leading source of data and analysis on the global beverage alcohol market)
and other financial information;
• assessing whether the cash flows included in the model were in accordance with the accounting standard IAS 36 - “Impairment of Assets”;
• independently assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and
• determining a reasonable range for the discount rate used within the model, with the assistance of PwC valuation experts, and comparing it to
We evaluated and tested the disclosures made in the Annual Report in relation to goodwill and indefinite-lived intangibles, and considered them to
the discount rate used by management.
be reasonable.
Relevant references in Annual Report
Note 1(e) - Critical accounting estimates and judgements
Note 4 - Exceptional items
Note 9 - Intangible assets
Uncertain tax positions in respect of direct and indirect taxes
Nature of the Key Audit Matter
Impacted FSLIs
Current tax assets
Current tax liabilities
Provision for tax uncertainties
2022
£149m
£252m
£156m
2021
£145m
£146m
£129m
The group operates across a large number of jurisdictions and in the normal course of business is subject to periodic challenges by tax authorities
on a range of matters, including transfer pricing, direct and indirect taxes, and transaction related matters. In common with all alcohol beverage
companies, taxation is particularly challenging because of specific alcohol duties and the international distribution of certain brands.
Diageo makes judgements in assessing the likelihood of potentially material exposures and develops estimates to determine provisions where
required, and considers whether contingent liability disclosures should be made. Of particular significance are direct and indirect tax assessments
in less mature markets and assessments relating to financing and transfer pricing arrangements. The impact of a more aggressive tax stance by
tax authorities to deal with government financing requirements following the Covid pandemic, and, in certain instances, changes in local tax
regulations together with ongoing inspections by local tax and customs authorities and international bodies could materially impact the amounts
recorded in the group financial statements.
The discussion with the Audit Committee
We discussed with the Audit Committee the judgements taken by management in assessing the risk of a potentially material exposure, and the
significant assumptions used by management in determining the level of provisioning. Our discussions specifically covered matters in Brazil and
India. We also discussed the disclosures, including those made in note 7 and note 19 to the Annual Report.
How our audit addressed the Key Audit Matter
We evaluated the design and implementation of controls to identify uncertain tax positions, and the related accounting policy for providing for and
disclosing tax exposures.
PwC tax specialists gained an understanding of the current status of tax assessments and investigations and monitored developments in ongoing
disputes. We read recent rulings and correspondence with tax authorities, as well as external advice provided by the group’s tax experts and legal
advisors to satisfy ourselves that the tax provisions had been appropriately recorded or adjusted to reflect the latest developments.
Where the basis for the conclusion reached was less clear, we challenged the advice from legal advisors and tax experts on how their view was
reached. We also challenged management’s key assumptions.
We agreed the mathematical accuracy of the provision calculation,
We evaluated and tested the related disclosures in relation to uncertain tax positions, and considered them to be reasonable.
Relevant references in Annual Report
Note 1(e) - Critical accounting estimates and judgements
Note 4 - Exceptional items
Note 5 - Finance income and charges
Note 7 - Taxation
Note 15 - Working capital
Note 19 - Contingent liabilities and legal
proceedings
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Valuation of post employment benefit liabilities
Nature of the Key Audit Matter
Impacted FSLI
Post employment benefit plan liabilities (Group)
Post employment benefit plan liabilities (Company)
2022
£7,234m
£4,897m
2021
£9,445m
£6,582m
The most significant post employment plans giving rise to the defined benefit liabilities are in the United Kingdom, Ireland and the United States.
The valuation of pension plan liabilities is dependent on a number of actuarial assumptions. Management uses external actuaries to assist in
determining these assumptions, and to determine the valuation of the defined benefit obligation. The experts use valuation methodologies that
require a number of market based inputs and other financial and demographic assumptions, including salary increases, mortality rates, discount
rates, inflation levels and the impact of any changes in individual pension plans. The significant assumptions that we focused our audit on were
those with greater levels of management judgement, and for which variations had the most significant impact on the liabilities.
Specifically, these included the discount rates, inflation rates and mortality rates.
The discussion with the Audit Committee
We discussed with the Audit Committee the methodologies and significant assumptions used by management to determine the value of the
defined benefit liabilities for the significant plans. We have performed our procedures over the following;
• the methodology for calculating the rate of future price increases following the Retail Prices Index reform in the United Kingdom, because it is
dependent upon an assumption which is subjective and sensitive; and
• updates to mortality assumptions for the UK and Irish schemes to reflect the impact of Covid-19.
How our audit addressed the Key Audit Matter
We evaluated the design and implementation of controls in place over the methodologies and the significant assumptions. We also evaluated the
objectivity and competence of Diageo’s experts involved in the valuation of the defined benefit obligations.
Our actuarial experts assessed the appropriateness of the methodology used to estimate the liabilities, and to review the calculations prepared by
Diageo’s actuarial experts. They also understood the judgments made by Diageo and their actuarial experts in determining the significant
assumptions, and compared these assumptions to our independently compiled expected ranges based on market observable indices, relevant
national and industry benchmarks, and our market experience, for the significant plans.
Based on our procedures, we considered management’s significant assumptions to be within reasonable ranges. We evaluated and tested the
related disclosures in relation to the defined benefit obligation, and considered them to be reasonable.
Relevant references in Annual Report
Note 1(e) - Critical accounting estimates and judgements
Note 14 - Post employment benefits
(Group)
Note 6 - Post employment benefits
(Company)
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Valuation of post employment benefit liabilities
Nature of the Key Audit Matter
Impacted FSLI
Post employment benefit plan liabilities (Group)
Post employment benefit plan liabilities (Company)
2022
£7,234m
£4,897m
2021
£9,445m
£6,582m
The most significant post employment plans giving rise to the defined benefit liabilities are in the United Kingdom, Ireland and the United States.
The valuation of pension plan liabilities is dependent on a number of actuarial assumptions. Management uses external actuaries to assist in
determining these assumptions, and to determine the valuation of the defined benefit obligation. The experts use valuation methodologies that
require a number of market based inputs and other financial and demographic assumptions, including salary increases, mortality rates, discount
rates, inflation levels and the impact of any changes in individual pension plans. The significant assumptions that we focused our audit on were
those with greater levels of management judgement, and for which variations had the most significant impact on the liabilities.
Specifically, these included the discount rates, inflation rates and mortality rates.
The discussion with the Audit Committee
We discussed with the Audit Committee the methodologies and significant assumptions used by management to determine the value of the
defined benefit liabilities for the significant plans. We have performed our procedures over the following;
• the methodology for calculating the rate of future price increases following the Retail Prices Index reform in the United Kingdom, because it is
dependent upon an assumption which is subjective and sensitive; and
• updates to mortality assumptions for the UK and Irish schemes to reflect the impact of Covid-19.
How our audit addressed the Key Audit Matter
We evaluated the design and implementation of controls in place over the methodologies and the significant assumptions. We also evaluated the
objectivity and competence of Diageo’s experts involved in the valuation of the defined benefit obligations.
Our actuarial experts assessed the appropriateness of the methodology used to estimate the liabilities, and to review the calculations prepared by
Diageo’s actuarial experts. They also understood the judgments made by Diageo and their actuarial experts in determining the significant
assumptions, and compared these assumptions to our independently compiled expected ranges based on market observable indices, relevant
national and industry benchmarks, and our market experience, for the significant plans.
Based on our procedures, we considered management’s significant assumptions to be within reasonable ranges. We evaluated and tested the
related disclosures in relation to the defined benefit obligation, and considered them to be reasonable.
Relevant references in Annual Report
Note 1(e) - Critical accounting estimates and judgements
Note 14 - Post employment benefits
(Group)
(Company)
Note 6 - Post employment benefits
Consolidated income statement
Sales
Excise duties
Net sales
Cost of sales
Gross profit
Marketing
Other operating items
Operating profit
Non-operating items
Finance income
Finance charges
Share of after tax results of associates and joint ventures
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity shareholders of the parent company
Non-controlling interests
Weighted average number of shares
Shares in issue excluding own shares
Dilutive potential ordinary shares
Basic earnings per share
Diluted earnings per share
The accompanying notes are an integral part of these consolidated financial statements.
Year ended
30 June 2022
Year ended
30 June 2021
Year ended
30 June 2020
Notes
2
3
2
3
3
3
4
5
5
6
£ million
22,448
(6,996)
15,452
(5,973)
9,479
(2,721)
(2,349)
4,409
(17)
497
(919)
417
4,387
7
(1,049)
3,338
3,249
89
3,338
million
2,318
7
2,325
pence
140.2
139.7
£ million
19,153
(6,420)
12,733
(5,038)
7,695
(2,163)
(1,801)
3,731
14
278
(651)
334
3,706
(907)
2,799
2,660
139
2,799
million
2,337
8
£ million
17,697
(5,945)
11,752
(4,654)
7,098
(1,841)
(3,120)
2,137
(23)
366
(719)
282
2,043
(589)
1,454
1,409
45
1,454
million
2,346
8
2,345
2,354
pence
113.8
113.4
pence
60.1
59.9
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Consolidated statement of comprehensive income
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment benefit plans
Group
Associates and joint ventures
Non-controlling interests
Tax on post employment benefit plans
Changes in the fair value of equity investments at fair value through other comprehensive income
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group
Associates and joint ventures
Non-controlling interests
Net investment hedges
Exchange loss recycled to the income statement
On disposal of foreign operations
Tax on exchange differences – group
Tax on exchange differences – non-controlling interests
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group
Transaction exposure hedging of the group
Hedges by associates and joint ventures
Commodity price risk hedging of the group
Recycled to income statement – hedge of foreign currency debt of the group
Recycled to income statement – transaction exposure hedging of the group
Recycled to income statement – commodity price risk hedging of the group
Tax on effective portion of changes in fair value of cash flow hedges
Hyperinflation adjustments
Tax on hyperinflation adjustments
Other comprehensive income/(loss), net of tax, for the year
Profit for the year
Total comprehensive income for the year
Attributable to:
Equity shareholders of the parent company
Non-controlling interests
Total comprehensive income for the year
The accompanying notes are an integral part of these consolidated financial statements.
Year ended
30 June 2022
Year ended
30 June 2021
Year ended
30 June 2020
Notes
£ million
£ million
£ million
14
14
6
8
7
18
616
5
(1)
(123)
(12)
485
1,128
60
171
(623)
63
(6)
—
233
(172)
(15)
78
(239)
42
(46)
32
365
(74)
997
1,482
3,338
4,820
4,561
259
4,820
16
3
—
(46)
—
(27)
(1,233)
(240)
(173)
810
—
(9)
(1)
(298)
101
(1)
41
175
10
(2)
(6)
(17)
5
(838)
(865)
2,799
1,934
1,969
(35)
1,934
38
(14)
—
(21)
—
3
(104)
82
(37)
(227)
4
4
—
221
(43)
6
(11)
(75)
42
8
(23)
(18)
4
(167)
(164)
1,454
1,290
1,282
8
1,290
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Consolidated statement of comprehensive income
Consolidated balance sheet
Changes in the fair value of equity investments at fair value through other comprehensive income
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment benefit plans
Group
Associates and joint ventures
Non-controlling interests
Tax on post employment benefit plans
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group
Associates and joint ventures
Non-controlling interests
Net investment hedges
Exchange loss recycled to the income statement
On disposal of foreign operations
Tax on exchange differences – group
Tax on exchange differences – non-controlling interests
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group
Transaction exposure hedging of the group
Hedges by associates and joint ventures
Commodity price risk hedging of the group
Recycled to income statement – hedge of foreign currency debt of the group
Recycled to income statement – transaction exposure hedging of the group
Recycled to income statement – commodity price risk hedging of the group
Tax on effective portion of changes in fair value of cash flow hedges
Hyperinflation adjustments
Tax on hyperinflation adjustments
Other comprehensive income/(loss), net of tax, for the year
Profit for the year
Total comprehensive income for the year
Attributable to:
Equity shareholders of the parent company
Non-controlling interests
Total comprehensive income for the year
The accompanying notes are an integral part of these consolidated financial statements.
Year ended
Year ended
Year ended
30 June 2022
30 June 2021
30 June 2020
Notes
£ million
£ million
£ million
14
14
6
8
7
18
616
5
(1)
(123)
(12)
485
1,128
60
171
(623)
63
(6)
—
233
(172)
(15)
78
(239)
42
(46)
32
365
(74)
997
1,482
3,338
4,820
4,561
259
4,820
16
3
—
(46)
—
(27)
(1,233)
(240)
(173)
810
—
(9)
(1)
(298)
101
(1)
41
175
10
(2)
(6)
(17)
5
(838)
(865)
2,799
1,934
1,969
(35)
1,934
38
(14)
(21)
—
—
3
(104)
82
(37)
(227)
4
4
—
221
(43)
6
(11)
(75)
42
8
(23)
(18)
4
(167)
(164)
1,454
1,290
1,282
8
1,290
Non-current assets
Intangible assets
Property, plant and equipment
Biological assets
Investments in associates and joint ventures
Other investments
Other receivables
Other financial assets
Deferred tax assets
Post employment benefit assets
Current assets
Inventories
Trade and other receivables
Corporate tax receivables
Assets held for sale
Other financial assets
Cash and cash equivalents
Total assets
Current liabilities
Borrowings and bank overdrafts
Other financial liabilities
Share buyback liability
Trade and other payables
Liabilities held for sale
Corporate tax payables
Provisions
Non-current liabilities
Borrowings
Other financial liabilities
Other payables
Provisions
Deferred tax liabilities
Post employment benefit liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to equity shareholders of the parent company
Non-controlling interests
Total equity
30 June 2022
30 June 2021
Notes
£ million
£ million
£ million
£ million
11,902
5,848
94
3,652
37
37
345
114
1,553
7,094
2,933
149
222
251
2,285
(1,522)
(444)
(117)
(5,887)
(61)
(252)
(159)
(14,498)
(703)
(380)
(258)
(2,319)
(402)
723
1,351
2,174
3,550
9
10
11
6
13
15
16
7
14
15
15
7
8
16
17
17
16
18
15
8
7
15
17
16
15
15
7
14
18
18
10,764
4,849
66
3,308
40
36
327
100
1,018
23,582
20,508
12,934
36,516
11,445
31,953
6,045
2,385
145
—
121
2,749
(1,862)
(257)
(91)
(4,648)
—
(146)
(138)
(8,442)
(7,142)
(12,865)
(384)
(338)
(274)
(1,945)
(574)
741
1,351
1,621
3,184
(16,380)
(23,522)
8,431
6,897
1,534
8,431
(18,560)
(27,002)
9,514
7,798
1,716
9,514
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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 on
27 July 2022 and were signed on its behalf by Ivan Menezes and Lavanya Chandrashekar, Directors.
146
146
Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
Diageo Annual Report 2022
147
147
Consolidated statement of changes in equity
At 30 June 2019
Profit for the year
Other comprehensive loss
Total comprehensive (loss)/ income for the year
Employee share schemes
Share-based incentive plans
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Share-based payments and purchase of treasury
shares in respect of subsidiaries
Shares issued
Transfers
Purchase of non-controlling interests
8
Non-controlling interest in respect of new
subsidiary
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2020
Profit for the year
Other comprehensive loss
Total comprehensive (loss)/income for the year
Employee share schemes
Share-based incentive plans
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Purchase of non-controlling interests
Associates' transactions with non-controlling
interests
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2021
Adjustment to 2021 closing equity in respect of
hyperinflation in Turkey
Adjusted opening balance
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Share-based payments and purchase of own
shares in respect of subsidiaries
Unclaimed dividend
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2022
Other reserves
Retained earnings/(deficit)
Share
capital
£ million
Share
premium
£ million
Notes
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
753
1,350
3,190
(818)
(2,026) 5,912 3,886
8,361
1,795
10,156
18
18
8
18
18
—
—
—
—
—
—
—
—
—
—
—
—
—
(11)
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
—
—
(116)
(116)
—
—
—
—
—
—
5
—
—
—
—
—
—
1,409
1,409
1,409
45
1,454
—
(11)
(11)
(127)
(37)
(164)
—
1,398
1,398
1,282
90
(36)
54
—
2
2
54
2
4
1
(1)
1
—
4
1
(1)
—
(5)
4
1
(1)
—
(5)
(39)
(39)
(39)
(23)
(62)
—
9
—
9
—
9
— (1,256) (1,256)
(1,256)
8
—
—
—
—
—
—
—
1,290
54
2
4
1
(1)
1
—
5
—
—
5
9
(1,256)
742
1,351
3,201
(929)
(1,936) 4,343 2,407
6,772
1,668
8,440
— (1,646) (1,646)
(1,646)
(117)
(1,763)
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
(652)
(652)
— 2,660 2,660
2,660
139
2,799
—
(39)
(39)
(691)
(174)
(865)
—
2,621
2,621
1,969
(35)
1,934
—
—
—
—
—
—
—
—
—
59
—
(10)
49
49
49
3
9
3
9
49
49
3
9
—
—
—
—
49
49
3
9
(15)
(15)
(15)
(27)
(42)
(91)
(2)
(91)
(2)
(91)
(2)
—
(200)
(200)
(200)
—
—
—
(91)
(2)
(200)
— (1,646) (1,646)
(1,646)
(72)
(1,718)
741
1,351
3,202
(1,581)
(1,877) 5,061
3,184
6,897
1,534
8,431
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
251
251
741
1,351
3,202
(1,581)
(1,877) 5,312
3,435
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18
—
—
535
535
—
—
—
—
—
—
—
—
—
—
—
—
39
—
—
—
—
—
—
—
—
3,249
3,249
777
777
4,026
4,026
50
59
4
9
89
59
4
9
251
7,148
3,249
1,312
4,561
89
59
4
9
—
1,534
89
170
259
—
—
—
—
251
8,682
3,338
1,482
4,820
89
59
4
9
(11)
(11)
3
3
(34)
(34)
(11)
3
(34)
(2,310) (2,310)
(2,310)
(6)
1
—
—
(17)
4
(34)
(2,310)
(1,720) (1,720)
(1,720)
(72)
(1,792)
—
—
—
—
—
—
—
—
—
—
723
1,351
3,220
(1,046)
(1,838) 5,388
3,550
7,798
1,716
9,514
(18)
18
—
The accompanying notes are an integral part of these consolidated financial statements.
148
148
Diageo Annual Report 2022
Diageo Annual Report 2022
Consolidated statement of changes in equity
Consolidated statement of cash flows
Purchase of non-controlling interests
8
(39)
(39)
(39)
(23)
(62)
Other reserves
Retained earnings/(deficit)
Share
capital
Share
redemption
exchange
premium
£ million
reserve
£ million
reserve
£ million
Own
shares
£ million
Notes
£ million
Other
retained
earnings
£ million
Capital
Hedging
and
Equity
attributable to
parent
Non-
company
controlling
Total
shareholders
£ million
£ million
interests
£ million
Total equity
£ million
753
1,350
3,190
(818)
(2,026) 5,912 3,886
8,361
1,795
10,156
—
(116)
(116)
—
1,409
1,409
1,409
45
1,454
—
(11)
(11)
(127)
(37)
(164)
—
1,398
1,398
1,282
90
(36)
54
—
2
2
54
2
1,290
54
—
—
—
—
—
—
—
—
4
1
(1)
—
(5)
4
1
(1)
—
(5)
—
9
—
9
59
—
(10)
49
49
49
—
—
—
—
—
3
9
3
9
(91)
(2)
(91)
(2)
4
1
(1)
1
—
—
9
49
49
3
9
(91)
(2)
18
18
8
18
18
—
—
—
—
—
—
—
—
—
—
—
—
—
(11)
—
—
—
—
—
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
11
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
—
18
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
535
535
742
1,351
3,201
(929)
(1,936) 4,343 2,407
6,772
1,668
8,440
— (1,256) (1,256)
(1,256)
(1,256)
— (1,646) (1,646)
(1,646)
(117)
(1,763)
(652)
(652)
— 2,660 2,660
2,660
139
2,799
—
(39)
(39)
(691)
(174)
(865)
—
2,621
2,621
1,969
(35)
1,934
(15)
(15)
(15)
(27)
(42)
741
1,351
3,202
(1,581)
(1,877) 5,061
3,184
6,897
1,534
8,431
—
(200)
(200)
(200)
— (1,646) (1,646)
(1,646)
(72)
(1,718)
741
1,351
3,202
(1,581)
(1,877) 5,312
3,435
—
1,534
89
170
259
251
8,682
3,338
1,482
4,820
251
251
3,249
3,249
777
777
4,026
4,026
50
59
4
9
3
89
59
4
9
3
(34)
(34)
39
—
—
—
—
—
—
—
—
—
—
—
—
251
7,148
3,249
1,312
4,561
89
59
4
9
(11)
3
(34)
(11)
(11)
(6)
8
—
—
—
—
—
—
—
5
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
2
4
1
(1)
1
—
5
9
49
49
3
9
(91)
(2)
(200)
89
59
4
9
(17)
4
(34)
At 30 June 2019
Profit for the year
Other comprehensive loss
Employee share schemes
Share-based incentive plans
Total comprehensive (loss)/ income for the year
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Share-based payments and purchase of treasury
shares in respect of subsidiaries
Shares issued
Transfers
Non-controlling interest in respect of new
subsidiary
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2020
Profit for the year
Other comprehensive loss
Total comprehensive (loss)/income for the year
Employee share schemes
Share-based incentive plans
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Purchase of non-controlling interests
Associates' transactions with non-controlling
interests
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2021
hyperinflation in Turkey
Adjusted opening balance
Profit for the year
Other comprehensive income
Adjustment to 2021 closing equity in respect of
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Share-based incentive plans in respect of
associates
Tax on share-based incentive plans
Share-based payments and purchase of own
shares in respect of subsidiaries
Unclaimed dividend
Change in fair value of put option
Share buyback programme
Dividend declared for the year
At 30 June 2022
148
148
Diageo Annual Report 2022
Diageo Annual Report 2022
(18)
18
(2,310) (2,310)
(2,310)
(2,310)
(1,720) (1,720)
(1,720)
(72)
(1,792)
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.
Cash flows from operating activities
Profit for the year
Taxation
Share of after tax results of associates and joint ventures
Net finance charges
Non-operating items
Operating profit
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables and provisions
Net (increase)/decrease in working capital
Depreciation, amortisation and impairment
Dividends received
Post employment payments less amounts included in operating profit
Other items
Cash generated from operations
Interest received
Interest paid
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Disposal of property, plant and equipment and computer software
Purchase of property, plant and equipment and computer software
Movements in loans and other investments
Sale of businesses and brands
Acquisition of businesses
Net cash outflow from investing activities
Cash flows from financing activities
Share buyback programme
Proceeds from issue of share capital
Net sale of own shares for share schemes
Purchase of treasury shares in respect of subsidiaries
Dividends paid to non-controlling interests
Proceeds from bonds
Repayment of bonds
Purchase of shares of non-controlling interests
Cash inflow from other borrowings(1)
Cash outflow from other borrowings(1)
Equity dividends paid
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in net cash and cash equivalents
Exchange differences
Net cash and cash equivalents at beginning of the year
Net cash and cash equivalents at end of the year
Net cash and cash equivalents consist of:
Cash and cash equivalents
Bank overdrafts
Year ended 30 June 2022
Year ended 30 June 2021
Year ended 30 June 2020
Notes
£ million
£ million
£ million
£ million
£ million
£ million
3,338
1,049
(417)
422
17
(740)
(378)
939
828
190
(89)
53
110
(438)
(949)
17
(1,097)
(72)
82
(271)
8
8
18
(2,284)
—
18
(15)
(81)
2,263
(1,521)
—
503
(424)
(1,718)
17
17
8
17
17
17
4,409
(179)
982
5,212
(1,277)
3,935
2,799
907
(334)
373
(14)
(443)
(446)
1,220
447
290
(30)
88
89
(440)
(852)
13
(626)
(4)
14
(488)
3,731
331
795
4,857
(1,203)
3,654
1,454
589
(282)
353
23
(366)
523
(485)
1,839
4
(109)
(14)
185
(493)
(901)
14
(700)
—
11
(130)
2,137
(328)
1,720
3,529
(1,209)
2,320
(1,341)
(1,091)
(805)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
(109)
—
49
—
(77)
1,031
(1,247)
(42)
34
(787)
(1,646)
(1,282)
1
54
—
(111)
5,188
(820)
(62)
497
(782)
(1,646)
(3,259)
(665)
239
2,637
2,211
2,285
(74)
2,211
(2,794)
(231)
(285)
3,153
2,637
2,749
(112)
2,637
1,037
2,552
(120)
721
3,153
3,323
(170)
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.
Diageo Annual Report 2022
Diageo Annual Report 2022
149
149
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.
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 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 by the UK, IFRSs as adopted by the EU
and IFRSs, as issued by the 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 the base case scenario,
management has included assumptions for mid-single digit net sales
growth, operating margin improvement and global TBA market share
growth. In light of the ongoing geopolitical volatility, the base case
outlook and plausible downside scenarios have incorporated
considerations for a slower post-pandemic economic recovery, supply
chain disruptions, higher inflation and further geopolitical deterioration.
Even under these scenarios, the group’s cash position is still expected to
remain strong, as the group's liquidity was protected by issuing
€1,650 million of fixed rate euro and £900 million of fixed rate sterling
denominated bonds 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 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 drawdowns on committed facilities. Having considered the
outcome of these assessments, the Directors are comfortable that the
company is a going concern for at least 12 months from the date of
signing the group's consolidated financial statements.
(c) Consolidation
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
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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 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.
The principal foreign exchange rates used in the translation of
financial statements for the three years ended 30 June 2022, expressed
in US dollars and euros per £1, were as follows:
US dollar
Income statement and cash flows(1)
Assets and liabilities(2)
Euro
Income statement and cash flows(1)
Assets and liabilities(2)
2022
2021
2020
1.33
1.21
1.18
1.16
1.35
1.39
1.13
1.17
1.26
1.23
1.14
1.09
(1) Weighted average rates
(2) Closing rates
The group uses foreign exchange hedges to mitigate the effect of
exchange rate movements. For further information, see note 16.
(e) Critical accounting estimates and judgements
Details of critical estimates and judgements which the 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 156
• 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 160
and 192
• 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 166
• Post employment benefits – management judgement in determining
whether a surplus can be recovered and management estimate in
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
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
endorsement by the UK Endorsement Board. Diageo plc transitioned to
primary economic environment in which each entity operates (its
UK-adopted International Accounting Standards in its consolidated
functional currency). The consolidated financial statements are
financial statements on 1 July 2021. This change constitutes a change in
presented in sterling, which is the functional currency of the parent
accounting framework. However, there is no impact on recognition,
company.
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 by the UK, IFRSs as adopted by the EU
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
and IFRSs, as issued by the IASB, including interpretations issued by the
rates are taken to the exchange reserve.
IFRS Interpretations Committee. IFRS as adopted by the UK and by the
Assets and liabilities are translated at closing rates. Exchange
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
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 borrowings and
statements are prepared on a going concern basis under the historical
financial instruments designated as net investment hedges, to the extent
cost convention, unless stated otherwise in the relevant accounting
that they are effective. Tax charges and credits arising on such items are
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
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
contingent assets and liabilities at the date of the financial statements,
rate of exchange at the date of the transaction.
and the reported amounts of revenues and expenses during the year.
The principal foreign exchange rates used in the translation of
Actual results could differ from those estimates.
financial statements for the three years ended 30 June 2022, expressed
(b) Going concern
in US dollars and euros per £1, were as follows:
Management has prepared cash flow forecasts which have also been
sensitised to reflect severe but plausible downside scenarios taking into
US dollar
consideration the group's principal risks. In the base case scenario,
Income statement and cash flows(1)
management has included assumptions for mid-single digit net sales
growth, operating margin improvement and global TBA market share
growth. In light of the ongoing geopolitical volatility, the base case
outlook and plausible downside scenarios have incorporated
considerations for a slower post-pandemic economic recovery, supply
Assets and liabilities(2)
Euro
Income statement and cash flows(1)
Assets and liabilities(2)
chain disruptions, higher inflation and further geopolitical deterioration.
(1) Weighted average rates
Even under these scenarios, the group’s cash position is still expected to
(2) Closing rates
2022
2021
2020
1.33
1.21
1.18
1.16
1.35
1.39
1.13
1.17
1.26
1.23
1.14
1.09
remain strong, as the group's liquidity was protected by issuing
€1,650 million of fixed rate euro and £900 million of fixed rate sterling
denominated bonds 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 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 drawdowns on committed facilities. Having considered the
outcome of these assessments, the Directors are comfortable that the
company is a going concern for at least 12 months from the date of
signing the group's consolidated financial statements.
(c) Consolidation
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
The group uses foreign exchange hedges to mitigate the effect of
exchange rate movements. For further information, see note 16.
(e) Critical accounting estimates and judgements
Details of critical estimates and judgements which the 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 156
• 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 160
and 192
• 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 166
• Post employment benefits – management judgement in determining
whether a surplus can be recovered and management estimate in
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determining the assumptions in calculating the liabilities of the funds
– page 172
• 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 191
(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. The exchange rate used to translate the results of
the group’s Venezuelan operations was VES/£ 759 for the year ended
30 June 2022 (2021 – VES/£ 237). These rates reflect management’s
estimate of the exchange rate considering inflation and the most
appropriate official exchange rate. Movement in the price index for the
year ended 30 June 2022 was 268% (2021 – 1,991%).The inflation rate
used by the group is provided by an independent valuer because no
reliable, officially published rate is available for Venezuela.
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 2022 and 30 June
2021 and with the amounts that would have resulted if the official
reference exchange rate had been applied:
Year ended 30 June 2022
At official
reference
exchange rate
Year ended 30 June 2021
At estimated
exchange
rate(1)
At official
reference
exchange rate(1)
At estimated
exchange rate
759 VES/£
£ million
—
(1)
1
—
41
Net sales
Operating (loss)/profit
Other finance income -
hyperinflation
adjustment
Net cash (outflow)/
inflow from
operating activities
Net assets
7 VES/£
£ million
237 VES/£
£ million
15
(1)
—
(1)
4 VES/£
£ million
4
11
157
2
122
(5)
4,606
—
38
9
2,016
(g) New accounting standards and interpretations
The following amendment to the accounting standards, issued by the
IASB and endorsed by the UK and EU, has been adopted by the group
from 1 July 2021 with no impact on the group’s consolidated results,
financial position or disclosures:
• Amendments to IFRS 16 – Covid-19 - related rent concessions beyond
30 June 2021
The following amendment issued by the IASB and endorsed by the UK
and EU, has been adopted by the group:
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 is not
required to discontinue its hedging relationships 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 progress of the transition, see note 16. The
adoption of Phase 2 Amendments in respect of disclosures and other
accounting 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 entity’s risk management strategy.
The following 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 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.
There are a number of other amendments and clarifications to
IFRSs, effective in future years, which are not expected to significantly
impact the group’s consolidated results or financial position.
(h) Climate change considerations
The impact of climate change assessment and the net zero carbon
emission target for Diageo's direct 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 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)) – identified no material financial
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 post-employment assets.
F
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1)
Prior year rates have been restated to reflect the Central Bank of Venezuela's decision
to cut six zeros from the bolivar currency from 1 October 2021.
Sterling amounts presented at the official reference exchange rate are results of simple
mathematical conversion.
The impact of hyperinflationary accounting for Lebanon was immaterial
both in the current and comparative periods.
Diageo Annual Report 2022
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151
151
Results for the year
Introduction
This section explains the results and performance of the group for the three years ended 30 June 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 five 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 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 function.
The group's operations also include the Corporate 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 centres are located
in India, Hungary, Colombia and the Philippines. These captive business service 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.
For planning and management reporting purposes, 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, prior period results are also restated to the
budgeted exchange rate. Segmental information for net sales and operating profit before exceptional items are reported on a consistent basis with
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 the 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 tables below at budgeted exchange rates.
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Results for the year
Introduction
2. Segmental information
Accounting policies
This section explains the results and performance of the group for the three years ended 30 June 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.
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 five 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
The segmental information presented is consistent with management reporting provided to the Executive Committee (the chief operating
ventures as set out in note 6.
decision maker).
The Executive Committee considers the business principally from a geographical perspective based on the location of 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 function.
The group's operations also include the Corporate 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 centres are located
in India, Hungary, Colombia and the Philippines. These captive business service 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.
For planning and management reporting purposes, 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, prior period results are also restated to the
budgeted exchange rate. Segmental information for net sales and operating profit before exceptional items are reported on a consistent basis with
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 the 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 tables below at budgeted exchange rates.
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(a) Segmental information for the consolidated income statement
Operating profit/(loss) before exceptional items
2,454
1,017
North
America
Europe
Asia
Pacific
Africa
Latin
America
and
Caribbean
Eliminate
inter-
segment
sales
SC&P
Total
operating
segments
Corporate
and other
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
6,682
5,740
5,624
2,403
1,945
2,010
(2,010) 22,394
54
22,448
5,955
3,258
2,879
1,699
1,486
2,095
(2,016)
15,356
55
15,411
34
9
97
—
23
46
—
9
15
3
(304)
(4)
(35)
189
—
—
3
12
24
—
—
(79)
(6)
—
—
—
6
—
75
—
(222)
189
6,095
3,212
2,884
1,682
1,525
2,010
(2,010)
15,398
—
—
75
—
(1)
(223)
—
54
189
15,452
2,388
1,086
(28)
(1)
11
(18)
703
—
(2)
32
—
63
—
36
—
(108)
10
—
—
10
—
711
(1)
(146)
(241)
2,453
871
470
346
528
(22)
(10)
(1)
—
—
(20)
—
315
—
315
—
—
(3)
(5)
18
—
538
—
538
—
22
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,029
(256)
4,773
(27)
—
65
(5)
(37)
10
—
—
—
—
18
—
(27)
—
65
(5)
(19)
10
5,035
(238)
4,797
(388)
—
(388)
4,647
(238) 4,409
(17)
(422)
425
(8)
4,387
North
America
Europe
Asia
Pacific
Africa
Latin
America
and
Caribbean
Eliminate
inter-
segment
sales
SC&P
Total
operating
segments
Corporate
and other
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
5,803
4,795
5,146
2,020
1,369
1,537
(1,537)
19,133
20
19,153
5,527
2,579
2,561
1,541
1,176
1,627
(1,548)
13,463
20
13,483
28
9
(355)
2
45
(68)
—
9
5
3
—
13
(82)
(137)
(143)
—
(79)
(11)
—
—
11
35
—
(785)
—
—
—
35
—
(785)
5,209
2,558
2,488
1,412
1,046
1,537
(1,537)
12,713
20
12,733
F
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T
A
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N
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S
2022
Sales
Net sales
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Retranslation to actual exchange rates
Hyperinflation
Net sales
Operating profit/(loss)
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Fair value remeasurement of contingent
considerations, equity option and earn out
arrangements
Fair value remeasurement of biological assets
Retranslation to actual exchange rates
Hyperinflation
Exceptional items
Operating profit/(loss)
Non-operating items
Net finance charges
Share of after tax results of associates and joint
ventures
Moët Hennessy
Other
Profit before taxation
2021
Sales
Net sales
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Retranslation to actual exchange rates
Net sales
Operating profit/(loss)
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
2,469
728
628
228
422
(18)
(30)
(3)
(32)
—
(5)
—
(3)
—
(27)
Fair value remeasurement of contingent
considerations, equity option and earn out
arrangements
Retranslation to actual exchange rates
(9)
(175)
(27)
(31)
—
(15)
Operating profit/(loss) before exceptional items
2,237
635
608
—
(15)
—
2,237
620
608
Exceptional items
Operating profit/(loss)
Non-operating items
Net finance charges
Share of after tax results of associates and joint
ventures
Moët Hennessy
Other
Profit before taxation
—
(54)
171
—
171
—
(92)
303
—
303
(97)
—
97
—
—
—
—
—
—
—
—
—
—
—
—
—
4,378
(218)
4,160
(21)
—
—
—
(21)
—
(36)
(367)
—
10
(36)
(357)
3,954
(208)
3,746
(15)
—
(15)
3,939
(208)
3,731
14
(373)
335
(1)
3,706
Diageo Annual Report 2022
Diageo Annual Report 2022
153
153
North
America
Europe
Asia
Pacific
Africa
Latin
America
and
Caribbean
Eliminate
inter-
segment
sales
SC&P
Total
operating
segments
Corporate
and other
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
5,222
4,697
4,645
1,911
1,184
1,343
(1,343)
17,659
38
17,697
4,445
2,501
2,253
1,300
944
1,439
(1,341)
11,541
38
11,579
32
11
135
10
60
(4)
1
12
4
50
4
(8)
—
10
(46)
—
(98)
2
—
—
(2)
93
(1)
81
—
1
(1)
93
—
80
4,623
2,567
2,270
1,346
908
1,343
(1,343)
11,714
38
11,752
2020
Sales
Net sales
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Retranslation to actual exchange rates
Net sales
Operating profit/(loss)
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Fair value remeasurement of contingent consideration
Fair value remeasurement of biological assets
Retranslation to actual exchange rates
2,007
730
498
116
254
(1)
6
(10)
—
32
(4)
26
(4)
—
9
—
6
—
—
(3)
501
—
2
—
—
(17)
101
(145)
(44)
—
5
7
9
(27)
248
(6)
242
45
—
(45)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,650
(152)
3,498
(5)
—
(7)
9
(6)
—
—
—
—
5
(5)
—
(7)
9
(1)
3,641
(147)
3,494
(1,357)
—
(1,357)
2,284
(147)
2,137
(23)
(353)
285
(3)
2,043
Operating profit/(loss) before exceptional items
2,034
757
54
(62)
(1,198)
2,088
695
(697)
Exceptional items
Operating profit/(loss)
Non-operating items
Net finance charges
Share of after tax results of associates and joint
ventures
Moët Hennessy
Other
Profit before taxation
(1)
(i)
These items represent the IFRS 8 performance measures for the geographical and SC&P segments.
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.
(ii) The group’s net finance charges are managed centrally and are not attributable to individual operating segments.
(iii) Approximately 37% of annual net sales occurred in the last four months of calendar year 2021.
(b) Other segmental information
2022
Capital expenditure
Depreciation and intangible asset amortisation
Exceptional impairment of tangible assets
Exceptional impairment of intangible assets
2021
Capital expenditure
Depreciation and intangible asset amortisation
2020
Capital expenditure
Depreciation and intangible asset amortisation
Underlying impairment
Exceptional impairment of tangible assets
Exceptional impairment of intangible assets
North
America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
Latin
America
and
Caribbean
£ million
SC&P
£ million
Corporate
and other
£ million
Total
£ million
230
(80)
—
—
153
(76)
145
(68)
—
—
—
187
(93)
(3)
(96)
23
(31)
24
(37)
(7)
—
—
146
(93)
—
(240)
56
(60)
59
(59)
—
(1)
(1,205)
139
(81)
—
—
125
(79)
128
(103)
—
(139)
—
128
(16)
—
—
20
(16)
48
(21)
(7)
—
—
256
(116)
—
—
125
(126)
191
(119)
—
—
—
11
1,097
(10)
(489)
—
—
124
(59)
105
(73)
—
—
—
(3)
(336)
626
(447)
700
(480)
(14)
(140)
(1,205)
154
154
Diageo Annual Report 2022
Diageo Annual Report 2022
These items represent the IFRS 8 performance measures for the geographical and SC&P segments.
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.
(ii) The group’s net finance charges are managed centrally and are not attributable to individual operating segments.
(iii) Approximately 37% of annual net sales occurred in the last four months of calendar year 2021.
North
America
Asia
Pacific
Europe
Africa
Caribbean
SC&P
Latin
America
and
Eliminate
inter-
segment
sales
Total
operating
segments
Corporate
and other
Total
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
£ million
5,222
4,697
4,645
1,911
1,184
1,343
(1,343)
17,659
38
17,697
4,445
2,501
2,253
1,300
944
1,439
(1,341)
11,541
38
11,579
4,623
2,567
2,270
1,346
908
1,343
(1,343)
11,714
38
11,752
2,007
730
498
116
254
3,650
(152)
3,498
32
11
135
10
60
(4)
1
12
4
50
4
(8)
—
10
(46)
—
(98)
2
(1)
6
(10)
—
32
(4)
26
(4)
—
9
—
6
—
—
(3)
501
54
(62)
(1,198)
2,088
695
(697)
—
2
—
—
(17)
101
(145)
(44)
—
5
7
9
(27)
248
(6)
242
45
—
(45)
—
—
—
—
—
—
93
(1)
81
(5)
—
(7)
9
(6)
—
1
(1)
—
—
—
—
5
—
—
(2)
—
—
—
—
—
—
—
—
—
3,641
(147)
3,494
(1,357)
—
(1,357)
2,284
(147)
2,137
93
—
80
(5)
—
(7)
9
(1)
(23)
(353)
285
(3)
2,043
North
America
£ million
Europe
£ million
Asia
Pacific
£ million
Africa
£ million
SC&P
£ million
Corporate
and other
£ million
Latin
America
and
Caribbean
£ million
230
(80)
—
—
153
(76)
145
(68)
—
—
—
187
(93)
(3)
(96)
23
(31)
24
(37)
(7)
—
—
146
(93)
—
(240)
56
(60)
59
(59)
—
(1)
(1,205)
139
(81)
—
—
125
(79)
128
(103)
—
(139)
—
128
(16)
—
—
20
(16)
48
(21)
(7)
—
—
256
(116)
—
—
125
(126)
191
(119)
—
—
—
(10)
(489)
Total
£ million
1,097
(3)
(336)
626
(447)
700
(480)
(14)
(140)
(1,205)
11
—
—
124
(59)
105
(73)
—
—
—
Fair value remeasurement of contingent consideration
Fair value remeasurement of biological assets
Retranslation to actual exchange rates
Operating profit/(loss) before exceptional items
2,034
757
2020
Sales
Net sales
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Retranslation to actual exchange rates
Net sales
Operating profit/(loss)
At budgeted exchange rates(1)
Acquisitions and disposals
SC&P allocation
Share of after tax results of associates and joint
Exceptional items
Operating profit/(loss)
Non-operating items
Net finance charges
ventures
Moët Hennessy
Other
Profit before taxation
(1)
(i)
(b) Other segmental information
2022
Capital expenditure
Depreciation and intangible asset amortisation
Exceptional impairment of tangible assets
Exceptional impairment of intangible assets
2021
2020
Capital expenditure
Depreciation and intangible asset amortisation
Capital expenditure
Depreciation and intangible asset amortisation
Underlying impairment
Exceptional impairment of tangible assets
Exceptional impairment of intangible assets
154
154
Diageo Annual Report 2022
Diageo Annual Report 2022
(c) Category and geographical analysis
2022
Sales(1)
Non-current assets(2), (3)
2021
Sales(1)
Non-current assets(2), (3)
2020
Sales(1)
Non-current assets(2), (3)
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
18,164
3,128
882
274
22,448
6,327
5,899
3,219
2,396
2,142
2,413
89
10,671
22,448
2,600
8,261
21,569
15,634
2,562
741
216
19,153
5,441
3,011
1,822
70
8,809
19,153
4,320
2,561
2,119
2,474
7,589
19,063
14,158
2,687
621
231
17,697
4,839
2,783
1,684
62
8,329
17,697
5,028
2,758
1,911
2,661
7,563
19,921
The geographical analysis of sales is based on the location of third-party sales.
(1)
(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.
(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.
3. Operating costs
Excise duties
Cost of sales
Marketing
Other operating items
Comprising:
Excise duties
United States
Great Britain
India
Other
Increase in inventories
Raw materials and consumables
Marketing
Other external charges
Staff costs
Depreciation, amortisation and impairment
Gains on disposal of properties
Net foreign exchange losses
Other operating income
2022
£ million
2021
£ million
2020
£ million
6,996
6,420
5,945
5,973
5,038
4,654
2,721
2,349
2,163
1,801
1,841
3,120
18,039
15,422
15,560
614
1,172
2,182
589
1,018
2,127
585
930
1,927
3,028
2,686
2,503
(909)
4,017
(293)
(275)
3,126
2,842
(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.
(2) Other assurance services comprise the aggregate fees for assurance and related
services that are not reported under ‘total audit fees’.
(i) Disclosure requirements for 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 £0.3 million (2021 –
£0.4 million; 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 2022 were £0.1 million (2021 – £0.1 million; 2020 – £0.1 million).
Further PwC fees for audit services in respect of post employment plans
were £0.2 million for the year ended 30 June 2022 (2021 – £0.2 million;
2020 – £0.3 million).
(c) Staff costs and average number of employees
Aggregate remuneration
2022
£ million
2021
£ million
2020
£ million
2,721
2,163
1,841
Wages and salaries
1,557
1,336
1,251
2,597
1,978
2,044
Share-based incentive plans
1,795
1,586
828
(2)
10
(14)
447
(1)
22
(26)
1,404
1,839
(2)
15
(93)
18,039
15,422
15,560
Employer’s social security
Employer’s pension
Defined benefit plans
Defined contribution plans
Other post employment plans
59
107
36
33
3
50
83
82
25
10
3
79
37
24
10
1,795
1,586
1,404
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
(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 – £34 million) and maintenance and repairs of
£136 million (2021 – £107 million; 2020 – £105 million).
(b) Auditors fees
Other external charges include the fees of the principal auditors of the
group, PricewaterhouseCoopers LLP and its affiliates (PwC) and are
analysed below.
Audit of these financial statements
Audit of financial statements of subsidiaries
Audit related assurance services(1)
Total audit fees (Audit fees)
Other assurance services (Audit related
fees)(2)
2022
£ million
2021
£ million
2020
£ million
4.2
6.1
2.5
12.8
0.7
13.5
3.8
4.4
2.6
10.8
0.8
11.6
5.3
3.6
2.4
11.3
0.8
12.1
The average number of employees on a full time equivalent basis
(excluding employees of associates and joint ventures) was as follows:
North America
Europe
Asia Pacific
Africa
Latin America and Caribbean
SC&P
Corporate and other
2022
2,811
3,014
6,500
4,061
1,500
5,025
5,076
2021
(Restated)(1)
2020
(Restated)(1)
2,562
3,237
6,474
4,016
1,505
5,085
4,687
2,459
3,323
6,559
4,617
1,549
4,908
4,940
27,987
27,566
28,355
(1)
The impact of acquisitions and disposals was changed and now disclosed restated
where relevant.
At 30 June 2022 the group had, on a full time equivalent basis, 28,558
(2021 – 27,783; 2020 – 27,788) employees. The average number of
employees of the group, including part time employees, for the year
was 28,137 (2021 – 28,025; 2020 – 28,490).
Diageo Annual Report 2022
Diageo Annual Report 2022
155
155
(d) Exceptional operating items
Included in other operating items are the following:
Exceptional operating items
2022
£ million
2021
£ million
2020
£ million
Brand, goodwill, tangible and other assets
impairment (a)
Winding down Russian operations (b)
Donations (c)
Ongoing litigation in Turkey (d)
Guaranteed minimum pension equalisation (e)
Obsolete inventories (f)
Substitution drawback (g)
Indirect tax in Korea (h)
Non-operating items
Sale of businesses and brands
Meta Abo Brewery (i)
Windsor business (j)
Picon brand (k)
United National Breweries (l)
USL businesses (m)
Portfolio of 19 brands (n)
Loss on disposal of associate (o)
Step acquisitions (p)
2022
£ million
2021
£ million
2020
£ million
(336)
(50)
(2)
—
—
—
—
—
—
—
(5)
(15)
(5)
7
3
—
(1,345)
—
(89)
—
—
(30)
83
24
(388)
(15)
(1,357)
(95)
(19)
91
6
—
—
—
—
—
—
—
—
—
—
10
(32)
3
1
—
—
—
2
(1)
8
(17)
14
(23)
Exceptional items before taxation
Items included in taxation (note 7 (b))
(405)
(1)
(1,380)
31
(84)
154
Total exceptional items
Attributable to:
Equity shareholders of the parent company
Non-controlling interests
Total exceptional items
(374)
(85)
(1,226)
(271)
(103)
(374)
(86)
(1,157)
1
(69)
(85)
(1,226)
(a) In the year ended 30 June 2022, an impairment charge of £336
million was recognised in exceptional operating items in respect of the
McDowell's No.1 brand (£240 million), Bell's brand (£77 million) and
Smirnov related goodwill (£19 million).
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 property, plant and equipment in Nigeria; and £55 million in
respect of property, plant and equipment in Ethiopia.
For further information, see note 9 (d).
(b) 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. 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 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.
Staff costs
Guaranteed minimum pension equalisation
charge
Other external charges
Other operating income
Depreciation, amortisation and impairment
Brand, goodwill, tangible and other assets
impairment
Total exceptional operating items (note 4)
4. Exceptional items
Accounting policies
—
52
—
5
13
(3)
—
95
(83)
336
388
—
15
1,345
1,357
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.
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.
156
156
Diageo Annual Report 2022
Diageo Annual Report 2022
(d) Exceptional operating items
Included in other operating items are the following:
Guaranteed minimum pension equalisation
Staff costs
charge
Other external charges
Other operating income
Depreciation, amortisation and impairment
Brand, goodwill, tangible and other assets
impairment
Total exceptional operating items (note 4)
4. Exceptional items
Accounting policies
Critical accounting judgements
2022
£ million
2021
£ million
2020
£ million
Brand, goodwill, tangible and other assets
impairment (a)
Exceptional operating items
Winding down Russian operations (b)
Donations (c)
Ongoing litigation in Turkey (d)
Guaranteed minimum pension equalisation (e)
—
52
—
5
13
(3)
—
95
(83)
336
388
—
15
1,345
1,357
Obsolete inventories (f)
Substitution drawback (g)
Indirect tax in Korea (h)
Non-operating items
Sale of businesses and brands
Meta Abo Brewery (i)
Windsor business (j)
Picon brand (k)
United National Breweries (l)
USL businesses (m)
Portfolio of 19 brands (n)
Loss on disposal of associate (o)
Step acquisitions (p)
2022
£ million
2021
£ million
2020
£ million
(388)
(15)
(1,357)
(336)
(50)
(2)
—
—
—
—
—
(95)
(19)
91
6
—
—
—
—
—
—
(5)
(15)
(5)
7
3
—
(1,345)
(89)
—
—
—
(30)
83
24
10
(32)
—
—
—
3
1
—
—
—
—
—
—
2
(1)
8
(17)
14
(23)
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.
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-
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.
recurring items, that are not in respect of the production, marketing
Smirnov related goodwill (£19 million).
Exceptional items before taxation
Items included in taxation (note 7 (b))
(405)
(1)
(1,380)
31
(84)
154
Total exceptional items
Attributable to:
Non-controlling interests
Total exceptional items
Equity shareholders of the parent company
(374)
(85)
(1,226)
(271)
(103)
(374)
(86)
(1,157)
1
(69)
(85)
(1,226)
(a) In the year ended 30 June 2022, an impairment charge of £336
million was recognised in exceptional operating items in respect of the
McDowell's No.1 brand (£240 million), Bell's brand (£77 million) and
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 property, plant and equipment in Nigeria; and £55 million in
respect of property, plant and equipment in Ethiopia.
For further information, see note 9 (d).
(b) 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. 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 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.
(l) In the year ended 30 June 2022, ZAR 133 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 (2021 – a gain of £10 million; 2020 - a loss of £32
million).
(m) Certain subsidiaries of United Spirits Limited (USL) were sold in the
year ended 30 June 2021. The sale of these subsidiaries resulted in an
exceptional gain of £3 million.
(n) In the year ended 30 June 2021, the group reversed £1 million (2020
- £2 million) from provisions in relation to the sale of a portfolio of 19
brands to Sazerac on 20 December 2018.
(o) In the year ended 30 June 2020, the disposal of an associate, Equal
Parts, LLC resulted in an exceptional loss of £1 million.
(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).
Cash payments and receipts included in net cash inflow from operating
activities in respect of exceptional items were as follows:
Donations
Thalidomide (note 15 (d) (i))
Winding down Russian operations
Indirect tax in Korea
Ongoing litigation in Turkey
Substitution drawback
French tax audit
Total cash payments
2022
£ million
2021
£ million
2020
£ million
(37)
(16)
(13)
—
—
—
—
(66)
(50)
(15)
—
(10)
(1)
60
—
(16)
(7)
(17)
—
—
—
26
(88)
(86)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
(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 2021, an additional provision of £15
million was recorded as an exceptional item in respect of 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
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 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.
(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.
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157
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.
Interest income
Fair value gain on financial instruments
Total interest income(1)
Interest charge on bank loans, bonds and
overdrafts
Interest charge on leases
Interest charge on other borrowings
Fair value loss on financial instruments
Total interest charges(1)
Net interest charges
Net finance income in respect of post
employment plans in surplus (note 14)
Hyperinflation adjustment in respect of
Venezuela (note 1)
Interest income in respect of direct and
indirect tax
Unwinding of discounts
Other finance income
Total other finance income
Net finance charge in respect of post
employment plans in deficit (note 14)
Hyperinflation adjustment and foreign
exchange revaluation of monetary items
in respect of Lebanon (note 1)
Unwinding of discounts
Interest charge in respect of direct and
indirect tax
Change in financial liability (Level 3)
Hyperinflation adjustment in respect of
Turkey (note 1)
Guarantee fees
Other finance charges
Total other finance charges
Net other finance charges
2022
£ million
2021
£ million
2020
£ million
127
341
468
(371)
(12)
(92)
(346)
(821)
(353)
119
124
243
192
123
315
(365)
(390)
(16)
(84)
(126)
(591)
(348)
(15)
(120)
(123)
(648)
(333)
22
18
26
1
2
4
—
29
2
15
—
—
35
6
16
—
3
51
(12)
(13)
(17)
(3)
(11)
(16)
(20)
(34)
(1)
(1)
(98)
(69)
(8)
(20)
(11)
(7)
—
(1)
—
(60)
(25)
—
(24)
(22)
(6)
—
(1)
(1)
(71)
(20)
(1)
Includes £27 million interest income and £(417) million interest charge in respect of
financial assets and liabilities that are not measured at fair value through income
statement (2021 – £28 million income and £(429) million charge; 2020 – £46 million
income and £(471) million charge).
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 wines and 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:
Cost less provisions
At 30 June 2020
Exchange differences
Additions
Share of profit/(loss) after tax
Dividends
Share of movements in other
comprehensive income and equity
Transfer
Impairment charged during the year
At 30 June 2021
Exchange differences
Additions
Share of profit/(loss) after tax
Dividends
Share of movements in other
comprehensive income and equity
Impairment charged during the year
Moët
Hennessy
£ million
Others
£ million
Total
£ million
3,395
(228)
—
335
(289)
(85)
—
—
3,128
48
—
425
(186)
(6)
—
162
3,557
(12)
38
(1)
(1)
—
2
(8)
180
12
65
(8)
(4)
—
(2)
(240)
38
334
(290)
(85)
2
(8)
3,308
60
65
417
(190)
(6)
(2)
At 30 June 2022
3,409
243
3,652
(i)
(ii)
Investment in associates balance includes loans given to and preference shares
invested in associates of £163 million (2021 – £108 million).
If certain performance targets are met by associates in the Distill Ventures programme,
an additional £22 million (2021 – £33 million) will be invested in those associates.
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(b) 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 translated at £1
= €1.18 (2021 – £1 = €1.13; 2020 – £1 = €1.14).
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:
Sales
Profit for the year
Total comprehensive income
2022
£ million
2021
£ million
2020
£ million
5,553
4,819
4,425
1,250
1,269
985
999
838
765
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
2022
£ million
5,957
8,447
14,404
2021
£ million
5,320
7,800
13,120
(1,791)
(1,665)
(2,415)
(2,256)
(4,206)
(3,921)
10,198
9,199
(i)
Including acquisition fair value adjustments principally in respect of Moët Hennessy’s
brands and translated at £1 = €1.16 (2021 – £1 = €1.17).
(c) Information on transactions between the group and its associates
and joint ventures is disclosed in note 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
£1,340 million (2021 – £1,254 million), plus the group’s share of post
acquisition reserves of £2,312 million (2021 – £2,054 million).
(e) The associates and joint ventures have not reported any material
contingent liabilities in their latest financial statements.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
5. Finance income and charges
6. Investments in associates and joint ventures
Accounting policies
Accounting policies
Net interest includes interest income and charges in respect of
An associate is an undertaking in which the group has a long-term
financial instruments and the results of hedging transactions used to
equity interest and over which it has the power to exercise significant
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.
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.
The impact of derivatives, excluding cash flow hedges that are in
Diageo’s principal associate is Moët Hennessy of which Diageo owns
respect of commodity price risk management or those that are used to
34%. Moët Hennessy is the wines and spirits subsidiary of LVMH Moët
hedge the currency risk of highly probable future currency cash flows,
is included in interest income or interest charge.
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
2022
£ million
2021
£ million
2020
£ million
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
(365)
(390)
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:
Interest income
Fair value gain on financial instruments
Total interest income(1)
Interest charge on bank loans, bonds and
overdrafts
Interest charge on leases
Interest charge on other borrowings
Fair value loss on financial instruments
Total interest charges(1)
Net interest charges
Net finance income in respect of post
employment plans in surplus (note 14)
Hyperinflation adjustment in respect of
Venezuela (note 1)
Interest income in respect of direct and
indirect tax
Unwinding of discounts
Other finance income
Total other finance income
Net finance charge in respect of post
employment plans in deficit (note 14)
Hyperinflation adjustment and foreign
exchange revaluation of monetary items
in respect of Lebanon (note 1)
Unwinding of discounts
Interest charge in respect of direct and
indirect tax
Change in financial liability (Level 3)
Hyperinflation adjustment in respect of
Turkey (note 1)
Guarantee fees
Other finance charges
Total other finance charges
Net other finance charges
22
18
26
127
341
468
(371)
(12)
(92)
(346)
(821)
(353)
1
2
4
—
29
(3)
(11)
(16)
(20)
(34)
(1)
(1)
(98)
(69)
119
124
243
(16)
(84)
(126)
(591)
(348)
2
15
—
—
35
(8)
(20)
(11)
(7)
—
(1)
—
(60)
(25)
192
123
315
(15)
(120)
(123)
(648)
(333)
6
16
—
3
51
—
(24)
(22)
(6)
—
(1)
(1)
(71)
(20)
(1)
Includes £27 million interest income and £(417) million interest charge in respect of
financial assets and liabilities that are not measured at fair value through income
statement (2021 – £28 million income and £(429) million charge; 2020 – £46 million
income and £(471) million charge).
(12)
(13)
(17)
Transfer
Cost less provisions
At 30 June 2020
Exchange differences
Additions
Dividends
Share of profit/(loss) after tax
Share of movements in other
comprehensive income and equity
Impairment charged during the year
At 30 June 2021
Exchange differences
Additions
Dividends
Share of profit/(loss) after tax
Share of movements in other
comprehensive income and equity
Impairment charged during the year
Moët
Hennessy
£ million
Others
£ million
Total
£ million
162
3,557
3,395
(228)
—
335
(289)
(85)
—
—
3,128
48
—
425
(186)
(6)
—
(12)
38
(1)
(1)
—
2
(8)
180
12
65
(8)
(4)
—
(2)
(240)
38
334
(290)
(85)
2
(8)
3,308
60
65
417
(190)
(6)
(2)
At 30 June 2022
3,409
243
3,652
(i)
Investment in associates balance includes loans given to and preference shares
invested in associates of £163 million (2021 – £108 million).
(ii)
If certain performance targets are met by associates in the Distill Ventures programme,
an additional £22 million (2021 – £33 million) will be invested in those associates.
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159
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 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.
(a) Analysis of taxation charge for the year
Current tax
Current year
Adjustments in respect of prior years
Deferred tax
Origination and reversal of temporary differences
Changes in tax rates
Adjustments in respect of prior years
United Kingdom
Rest of world
2022
£ million
2021
£ million
2020
£ million
2022
£ million
2021
£ million
2020
£ million
2022
£ million
Total
2021
£ million
2020
£ million
174
10
184
—
2
—
2
100
1
101
13
46
8
67
108
6
114
24
6
—
30
144
867
16
883
21
1
(42)
(20)
863
684
28
712
18
32
(23)
27
739
589
(25)
1,041
26
564
1,067
(143)
39
(15)
(119)
445
21
3
(42)
(18)
784
29
813
31
78
(15)
94
697
(19)
678
(119)
45
(15)
(89)
1,049
907
589
Taxation on profit
186
168
160
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Diageo Annual Report 2022
Diageo Annual Report 2022
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 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.
(a) Analysis of taxation charge for the year
Adjustments in respect of prior years
Current tax
Current year
Deferred tax
Origination and reversal of temporary differences
Changes in tax rates
Adjustments in respect of prior years
United Kingdom
Rest of world
2022
£ million
2021
£ million
2020
£ million
2022
£ million
2021
£ million
2020
£ million
2022
£ million
Total
2021
£ million
2020
£ million
174
10
184
—
2
—
2
100
1
101
13
46
8
67
108
6
114
24
6
—
30
144
867
16
883
21
1
(42)
(20)
863
684
28
712
18
32
(23)
27
739
589
(25)
1,041
26
564
1,067
(143)
39
(15)
(119)
445
21
3
(42)
(18)
784
29
813
31
78
(15)
94
697
(19)
678
(119)
45
(15)
(89)
Taxation on profit
186
168
1,049
907
589
160
160
Diageo Annual Report 2022
Diageo Annual Report 2022
(b) Exceptional tax (credits)/charges
The taxation charge includes the following exceptional items:
Brand and tangible asset impairment(1)
Sale of Picon brand
Winding down Russian operations
Donations(2)
Tax rate change in the United Kingdom(3)
Tax rate change in the Netherlands(4)
Obsolete inventories
Substitution drawback
Guaranteed minimum pension equalisation
Other items
2022
£ million
2021
£ million
(55)
23
3
(2)
—
—
—
—
—
—
—
—
—
(5)
46
42
1
1
(1)
—
2020
£ million
(165)
—
—
—
—
—
(7)
20
—
(2)
(31)
84
(154)
(1)
In the year ended 30 June 2022, the exceptional tax credit of £55 million consists of tax impact on the impairment of the McDowell's and Bell's brand for £35 million and £20 million
respectively. In the year ended 30 June 2020, the exceptional tax credit of £165 million consisted of tax impact on the impairment of the Windsor and USL brands for £105 million and
£25 million, respectively, and exceptional tax credits in respect of fixed assets impairments in Nigeria and Ethiopia of £25 million and £10 million, respectively.
(2) In the year ended 30 June 2020, 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. Based on additional information becoming available for re-assessment, a £2 million (30 June 2021 – £5 million) exceptional tax credit was recognised for the year ended 30
June 2022.
(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 2022, the Dutch Senate enacted an increased tax rate of 25.8%. The remeasurement of deferred tax liabilities
was recognised as an underlying tax charge.
(c) Taxation rate reconciliation and factors that may affect future tax charges
Profit before taxation
Notional charge at UK corporation tax rate
Elimination of notional tax on share of after tax results of associates and joint
ventures
Differences in overseas tax rates
Effect of intra-group financing
Non-taxable gain on disposals of businesses
Step-up gain
Other tax rate and tax base differences
Other items not chargeable
Impairment
Non-deductible losses on disposals of businesses
Other items not deductible(1)
Irrecoverable withholding taxes
Movement in provision in respect of uncertain tax positions(2)
Changes in tax rates(3)
Adjustments in respect of prior years(4)
Taxation on profit
Tax rate before exceptional items
2022
£ million
4,387
833
(79)
161
—
—
—
—
(49)
36
21
58
39
42
3
(16)
1,049
—
2022
%
19.0
(1.8)
3.7
—
—
—
—
(1.1)
0.8
0.5
1.3
0.9
0.9
0.1
(0.4)
23.9
22.5
2021
£ million
3,706
704
(63)
128
—
(2)
—
—
(52)
—
—
67
25
1
78
21
907
—
2021
%
19.0
(1.7)
3.5
—
(0.1)
—
—
(1.4)
—
—
1.8
0.7
—
2.1
0.6
24.5
22.2
2020
£ million
2,043
388
(54)
53
(13)
—
(2)
(47)
(60)
135
6
115
36
6
45
(19)
589
—
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
2020
%
19.0
(2.6)
2.6
(0.6)
—
(0.1)
(2.3)
(3.0)
6.6
0.3
5.6
1.7
0.3
2.2
(0.9)
28.8
21.7
(1) Other items not deductible include additional state and local taxes and other expenses.
(2) Movement in provision in respect of uncertain tax positions includes both current and prior year uncertain tax position movements.
(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.
(4) Excludes prior year movement in provisions.
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 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 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. For the year ended 30 June
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
Diageo Annual Report 2022
Diageo Annual Report 2022
161
161
(30 June 2021 – £145 million) and tax liability of £252 million (30 June 2021 – £146 million) include £156 million (30 June 2021 – £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 is £100 million lower than the current
tax charge (30 June 2021 – £39 million higher). This arises as a result of timing differences between the accrual of income taxes, the movement in the
provision for uncertain tax 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.
(d) Deferred tax assets and liabilities
Deferred tax 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(1)
£ million
(340)
(1,736)
(72)
At 30 June 2020
Exchange differences
Recognised in income statement
Reclassification
Recognised in other comprehensive loss and equity
Tax rate change – recognised in income statement
Tax rate change – recognised in other comprehensive loss and equity
Acquisition of subsidiaries
At 30 June 2021
Exchange differences
Recognised in income statement
Reclassification
Recognised in other comprehensive loss and equity
Tax rate change – recognised in income statement
Tax rate change – recognised in other comprehensive loss and equity
Acquisition of businesses
Sale of businesses
At 30 June 2022
26
(28)
—
—
(39)
—
—
(381)
(21)
(42)
2
(20)
(1)
—
—
(5)
(468)
176
(19)
7
—
(48)
—
(16)
(1,636)
(155)
(3)
40
(104)
(3)
—
(31)
—
(7)
2
—
(6)
(2)
(44)
—
(129)
3
(10)
—
(103)
—
(22)
—
—
61
(5)
—
—
—
1
—
—
57
3
2
—
—
1
—
—
—
234
(17)
29
(7)
(2)
10
(4)
1
244
17
74
(7)
20
—
2
—
3
Total
£ million
(1,853)
173
(16)
—
(8)
(78)
(48)
(15)
(1,845)
(153)
21
35
(207)
(3)
(20)
(31)
(2)
(1,892)
(261)
63
353
(2,205)
(1) Deferred tax on other temporary differences includes hyperinflation, fair value movement on cross-currency swaps, interest and finance costs, share-based payments and intra-group
Additionally, no deferred tax asset has been recognised in respect of
certain temporary differences arising from brand valuations, as the
group is not planning to sell those brands thus the benefit from the
temporary differences is unlikely to be realised.
(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 £21.0 billion (2021 – £16.4 billion).
sales of products.
After offsetting deferred tax assets and liabilities where appropriate
within territories, the net deferred tax liability comprises:
Deferred tax assets
Deferred tax liabilities
2022
£ million
2021
£ million
114
100
(2,319)
(1,945)
(2,205)
(1,845)
Deferred tax assets of £114 million include £47 million (2021 – £48
million) arising in jurisdictions with prior year taxable 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 £674 million (2021 – £708 million).
Capital losses – indefinite
Trading losses – indefinite
Trading and capital losses – expiry dates up to 2032
2022
£ million
2021
£ million
98
25
46
169
105
23
50
178
162
162
Diageo Annual Report 2022
Diageo Annual Report 2022
(30 June 2021 – £145 million) and tax liability of £252 million (30 June 2021 – £146 million) include £156 million (30 June 2021 – £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 is £100 million lower than the current
tax charge (30 June 2021 – £39 million higher). This arises as a result of timing differences between the accrual of income taxes, the movement in the
provision for uncertain tax 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.
(d) Deferred tax assets and liabilities
Deferred tax 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(1)
£ million
(340)
(1,736)
(72)
26
(28)
(39)
—
—
—
—
(381)
(21)
(42)
(20)
(1)
2
—
—
(5)
(468)
176
(19)
7
—
(48)
—
(16)
(1,636)
(155)
(3)
40
(104)
(3)
(31)
—
—
(7)
2
—
(6)
(2)
(44)
—
(129)
(10)
(103)
(22)
3
—
—
—
—
Total
£ million
(1,853)
173
(16)
—
(8)
(78)
(48)
(15)
(1,845)
(153)
21
35
(207)
(3)
(20)
(31)
(2)
234
(17)
29
(7)
(2)
10
(4)
1
244
17
74
(7)
20
—
2
—
3
61
(5)
—
—
—
1
—
—
57
3
2
—
—
1
—
—
—
Recognised in other comprehensive loss and equity
Tax rate change – recognised in income statement
Tax rate change – recognised in other comprehensive loss and equity
Recognised in other comprehensive loss and equity
Tax rate change – recognised in income statement
Tax rate change – recognised in other comprehensive loss and equity
At 30 June 2020
Exchange differences
Recognised in income statement
Reclassification
Acquisition of subsidiaries
At 30 June 2021
Exchange differences
Recognised in income statement
Reclassification
Acquisition of businesses
Sale of businesses
At 30 June 2022
sales of products.
Deferred tax assets
Deferred tax liabilities
(1) Deferred tax on other temporary differences includes hyperinflation, fair value movement on cross-currency swaps, interest and finance costs, share-based payments and intra-group
(1,892)
(261)
63
353
(2,205)
After offsetting deferred tax assets and liabilities where appropriate
Additionally, no deferred tax asset has been recognised in respect of
within territories, the net deferred tax liability comprises:
certain temporary differences arising from brand valuations, as the
group is not planning to sell those brands thus the benefit from the
2022
£ million
2021
£ million
temporary differences is unlikely to be realised.
114
100
(f) Unrecognised deferred tax liabilities
(2,319)
(1,945)
Relevant legislation largely exempts overseas dividends remitted from
(2,205)
(1,845)
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
Deferred tax assets of £114 million include £47 million (2021 – £48
is an intention to distribute earnings, and a tax liability arises. It is
million) arising in jurisdictions with prior year taxable losses, primarily in
impractical to estimate the amount of unrecognised deferred tax
respect of Germany and Brazil. It is considered more likely than not that
liabilities in respect of these unremitted earnings.
there will be sufficient future taxable profits to realise these deferred tax
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 £21.0 billion (2021 – £16.4 billion).
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 £674 million (2021 – £708 million).
Capital losses – indefinite
Trading losses – indefinite
Trading and capital losses – expiry dates up to 2032
2022
£ million
2021
£ million
98
25
46
169
105
23
50
178
162
162
Diageo Annual Report 2022
Diageo Annual Report 2022
Operating assets and liabilities
Introduction
This section describes the assets used in the group’s 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
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. The results of subsidiaries acquired or sold are included in the income statement from, or up to, the date
that control passes.
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 it controls 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.
(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 2022
were as follows:
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Brands and other intangibles
Property, plant and equipment
Inventories
Other working capital
Deferred tax
Borrowings
Cash
Fair value of assets and liabilities
Goodwill arising on acquisition
Settlement of pre-existing relationship
Step acquisitions
Consideration payable
Satisfied by:
Cash consideration paid
Contingent consideration payable
Deferred consideration payable
Net assets acquired and consideration
21Seeds
£ million
Other
£ million
2022
£ million
2021
£ million
84
—
4
—
36
—
2
3
(20)
(11)
—
1
69
48
—
—
117
(62)
(55)
—
(117)
—
—
30
22
(1)
(6)
45
(26)
(15)
(4)
(45)
120
334
—
6
3
(31)
—
1
99
70
(1)
(6)
162
(88)
(70)
(4)
(162)
15
12
(3)
(15)
(8)
4
339
274
—
—
613
(358)
(253)
(2)
(613)
2020
£ million
102
—
2
(3)
(19)
—
2
84
8
—
(23)
69
(27)
(42)
—
(69)
Diageo Annual Report 2022
Diageo Annual Report 2022
163
163
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 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 upfront cash consideration paid on completion of these
three transactions in the year ended 30 June 2021 was £95 million. In
addition, two of these transactions included provision for further
contingent consideration of up to £86 million in aggregate, in each
case linked to performance targets, and one of the transactions
provided for a further £2 million of deferred consideration, of which
£1 million was paid by 30 June 2021.
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
In the years ended 30 June 2021 and 2020, East African Breweries Ltd,
a Diageo subsidiary completed the acquisition of 30% and 4%,
respectively, of shares in Serengeti Breweries Limited for a consideration
of $55 million (£42 million) and $3 million (£2 million) in cash,
respectively and £16 million in the form of shareholder loan from two
Diageo subsidiaries in 2021, increasing Diageo's effective economic
interest from 39.2% to 47.0%. All transactions were recognised in
retained earnings.
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).
Cash consideration paid in respect of the acquisition of businesses and
purchase of shares of non-controlling interests in the three years ended
30 June 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
Other consideration
Investments in associates
Cash consideration paid
Capital injection
Cash acquired
Net cash outflow on acquisition of
businesses
Purchase of shares of non-controlling
interests
Total net cash outflow
(83)
(36)
(4)
(61)
1
(89)
(7)
—
(38)
4
(49)
(9)
(6)
(41)
2
(271)
(488)
(130)
—
(42)
(271)
(530)
(62)
(192)
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 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.
164
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Diageo Annual Report 2022
Cash consideration paid in respect of the acquisition of businesses and
Diageo also completed a number of additional acquisitions in the year
purchase of shares of non-controlling interests in the three years ended
ended 30 June 2021, comprising: (i) on 26 February 2021, the acquisition
30 June 2022 were as follows:
(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:
Sale consideration
Cash received
Overdraft disposed of
Transaction and other directly attributable costs paid
Net cash received
Transaction costs payable
Net assets disposed of
Goodwill
Property, plant and equipment
Investment in associates
Assets and liabilities held for sale
Inventories
Other working capital
Other borrowings
Corporate tax
Deferred tax
Impairment charge recognised up until the date of sale
Exchange recycled from other comprehensive income
(Loss)/gain on disposal before taxation
Taxation
(Loss)/gain on disposal after taxation
2022
£ million
2021
£ million
2020
£ million
106
2
(26)
82
(16)
66
(14)
(11)
—
—
(4)
15
1
(5)
(2)
(20)
—
(63)
(17)
(23)
(40)
14
—
—
14
1
15
—
(2)
—
—
—
1
—
—
—
(1)
—
—
14
—
14
11
—
—
11
(1)
10
—
(1)
(1)
(30)
—
—
—
—
—
(32)
(7)
(4)
(33)
—
(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 2022, ZAR 133 million (£6 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.
Prior year disposals further included the sale of certain United Spirits Limited subsidiaries in the year ended 30 June 2021 for an aggregate
consideration of £3 million, which resulted in an exceptional gain of £3 million.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
(c) Assets and liabilities held for sale
Intangible assets
Property, plant and equipment
Other investments
Inventories
Trade and other receivables
Assets held for sale
Trade and other payables
Corporation tax
Deferred tax
Leases
Liabilities held for sale
Total
Windsor
business
£ million
145
3
1
6
1
156
(5)
(6)
(28)
(2)
(41)
115
USL Popular
brands
£ million
20
9
—
15
22
66
(13)
—
(7)
—
(20)
46
2022
£ million
165
12
1
21
23
222
(18)
(6)
(35)
(2)
(61)
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 ending 30 June 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 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 cost and fair value less cost of disposal.
Diageo Annual Report 2022
Diageo Annual Report 2022
165
165
Cash consideration paid
(88)
(358)
(27)
Acquisitions in the year - subsidiaries
Prior year acquisitions - subsidiaries
Contingent consideration paid for
Casamigos
Other consideration
Investments in associates
Cash consideration paid
Capital injection
Cash acquired
Net cash outflow on acquisition of
businesses
interests
Purchase of shares of non-controlling
Total net cash outflow
Acquisitions in the year
Consideration
2022
£ million
2021
£ million
2020
£ million
(83)
(36)
(4)
(61)
1
(89)
(7)
—
(38)
4
(49)
(9)
(6)
(41)
2
(271)
(488)
(130)
—
(42)
(271)
(530)
(62)
(192)
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.
of Chase Distillery Limited, to further support 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 upfront cash consideration paid on completion of these
three transactions in the year ended 30 June 2021 was £95 million. In
addition, two of these transactions included provision for further
contingent consideration of up to £86 million in aggregate, in each
case linked to performance targets, and one of the transactions
provided for a further £2 million of deferred consideration, of which
£1 million was paid by 30 June 2021.
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
In the years ended 30 June 2021 and 2020, East African Breweries Ltd,
a Diageo subsidiary completed the acquisition of 30% and 4%,
respectively, of shares in Serengeti Breweries Limited for a consideration
of $55 million (£42 million) and $3 million (£2 million) in cash,
respectively and £16 million in the form of shareholder loan from two
Diageo subsidiaries in 2021, increasing Diageo's effective economic
interest from 39.2% to 47.0%. All transactions were recognised in
Diageo completed further acquisitions in the year ended 30 June
retained earnings.
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
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
Flavour experience at Johnnie Walker Princes Street, to support Diageo's
by the USL Benefit Trust).
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 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.
164
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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 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. 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 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 are both considered for these reviews and any impairment charge 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.
The below additional considerations have been applied by management regarding the potential financial impacts of increasing inflationary
pressures, recently observable worldwide:
• changes in the interest rate environment are taken into consideration when determining the discount rates;
• terminal growth rates do not exceed the long-term annual inflation rate of the 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 inflation and/or the 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 (‘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 to the current year
impairment assessments.
166
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Diageo Annual Report 2022
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 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. 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 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 are both considered for these reviews and any impairment charge 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.
The below additional considerations have been applied by management regarding the potential financial impacts of increasing inflationary
pressures, recently observable worldwide:
• changes in the interest rate environment are taken into consideration when determining the discount rates;
• terminal growth rates do not exceed the long-term annual inflation rate of the country or region, thus excluding any increased inflation growth
• additional sensitivity scenarios are applied for those markets or regions where the inflation and/or the exchange devaluation is considered
experienced in the short-term;
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 (‘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 to the current year
impairment assessments.
Cost
At 30 June 2020
Exchange differences
Additions
Disposals
At 30 June 2021
Hyperinflation adjustment in respect of Turkey
Exchange differences
Additions
Disposals
Reclassification to asset held for sale
At 30 June 2022
Amortisation and impairment
At 30 June 2020
Exchange differences
Amortisation for the year
Disposals
At 30 June 2021
Exchange differences
Amortisation for the year
Impairment
Disposals
Reclassification to asset held for sale
At 30 June 2022
Carrying amount
At 30 June 2022
At 30 June 2021
At 30 June 2020
Brands
£ million
Goodwill
£ million
Other
intangibles
£ million
Computer
software
£ million
8,923
(799)
334
—
8,458
315
639
109
(23)
(560)
8,938
1,168
(71)
—
—
1,097
51
—
317
(23)
(400)
1,042
7,896
7,361
7,755
2,664
(311)
274
—
2,627
208
145
70
(42)
—
1,587
(174)
8
—
1,421
—
194
55
—
—
3,008
1,670
752
(82)
—
—
670
60
—
19
(28)
—
721
78
(3)
5
—
80
(1)
7
—
—
—
86
2,287
1,957
1,912
1,584
1,341
1,509
698
(30)
32
(27)
673
1
28
67
(23)
(8)
738
574
(26)
44
(24)
568
25
38
—
(20)
(8)
603
135
105
124
Total
£ million
13,872
(1,314)
648
(27)
13,179
524
1,006
301
(88)
(568)
14,354
2,572
(182)
49
(24)
2,415
135
45
336
(71)
(408)
2,452
11,902
10,764
11,300
(a) Brands
At 30 June 2022, the principal acquired brands, all of which are regarded as having indefinite useful economic lives, are as follows:
Crown Royal whisky
Captain Morgan rum
McDowell's No.1 whisky, rum and brandy
Smirnoff vodka
Johnnie Walker whisky
Casamigos tequila
Yenì raki
Shui Jing Fang Chinese white spirit
Aviation American gin
Don Julio tequila
Signature whisky
Seagram's 7 Crown whiskey
Black Dog whisky
Antiquity whisky
Zacapa rum
Gordon's gin
Bell's whisky
Windsor Premier whisky
Other brands
Principal markets
2022
£ million
United States
1,210
2021
£ million
1,053
Global
India
Global
Global
United States
Turkey
Greater China
United States
United States
India
United States
India
India
Global
Europe
Europe
Korea
993
778
681
625
499
294
279
218
207
191
184
162
158
158
119
102
—
864
944
593
625
434
141
253
190
185
177
160
150
147
138
119
179
145
1,038
7,896
864
7,361
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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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Diageo Annual Report 2022
167
167
(b) Goodwill
For the purposes of impairment testing, goodwill has been attributed to
the following cash-generating units:
North America
Europe
Turkey
Asia Pacific
Greater China
India
Latin America and Caribbean – Mexico
Other cash-generating units
2022
£ million
2021
£ million
773
609
255
143
141
747
142
229
128
693
126
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.
(c) Other intangibles
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 2022 was £1,488 million (2021 – £1,295 million).
(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 the associated 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 forecasted for each cash-generating unit for the financial
years based on management's approved plans and reflect the
following assumptions:
• Cash flows are projected based on the actual operating results and
a three-year strategic plan approved by 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 in certain markets. A simple average of these
projections served as the estimation of the recoverable amount of
the cash-generating units including the Bell's brand. Management
has no information which would indicate that any of the scenarios
are more likely than 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. 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 two years of detailed forecasts;
• 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
reflect the returns on government bonds and an equity risk premium
adjusted for the drinks industry specific to the cash-generating units. 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:
North America – United States
Europe
United Kingdom
Turkey
Asia Pacific
Australia
India
Africa
South Africa
Nigeria
Latin America and Caribbean
Brazil
2022
2021
Pre-tax discount
rate
%
Terminal growth
rate
%
Long-term growth
rate
%
Pre-tax discount
rate
%
Terminal growth
rate
%
Long-term growth
rate
%
8
8
31
7
14
16
24
12
2
2
15
2
4
—
12
3
4
4
25
5
11
6
15
6
7
6
22
6
12
13
19
11
2
2
11
2
4
—
10
3
4
4
16
5
11
6
14
6
Following 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 2022.
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 £240 million for the year ended 30 June 2022 was recognised in exceptional operating items in
respect of the McDowell's No.1 brand. The charge was a result of higher discount rate reflecting the adverse inflationary and macroeconomic
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Diageo Annual Report 2022
(b) Goodwill
Cash flows
For the purposes of impairment testing, goodwill has been attributed to
Cash flows are forecasted for each cash-generating unit for the financial
the following cash-generating units:
years based on management's approved plans and reflect the
following assumptions:
2022
£ million
2021
£ million
773
609
a three-year strategic plan approved by management. Cash flows
• Cash flows are projected based on the actual operating results and
North America
Europe
Turkey
Asia Pacific
Greater China
India
Latin America and Caribbean – Mexico
Other cash-generating units
255
143
141
747
142
229
128
693
126
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.
(c) Other intangibles
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 2022 was £1,488 million (2021 – £1,295 million).
(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 the associated 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:
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 in certain markets. A simple average of these
projections served as the estimation of the recoverable amount of
the cash-generating units including the Bell's brand. Management
has no information which would indicate that any of the scenarios
are more likely than 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. 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 two years of detailed forecasts;
• 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
reflect the returns on government bonds and an equity risk premium
adjusted for the drinks industry specific to the cash-generating units. 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:
North America – United States
Europe
United Kingdom
Turkey
Asia Pacific
Australia
India
Africa
South Africa
Nigeria
Brazil
Latin America and Caribbean
2022
Pre-tax discount
Terminal growth
Long-term growth
Pre-tax discount
Terminal growth
Long-term growth
2021
rate
%
rate
%
8
8
31
7
14
16
24
12
rate
%
2
2
15
2
4
—
12
3
rate
%
4
4
25
5
11
6
15
6
rate
%
7
6
22
6
12
13
19
11
rate
%
4
4
16
5
11
6
14
6
2
2
11
2
4
—
10
3
Following 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 2022.
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 £240 million for the year ended 30 June 2022 was recognised in exceptional operating items in
respect of the McDowell's No.1 brand. The charge was a result of higher discount rate reflecting the adverse inflationary and macroeconomic
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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
participation in 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 £35 million. The recoverable amount of the McDowell's No.1 cash generating unit is £892
million.
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 2022 was recognised in exceptional operating items in 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 the opening impairment charge has been reflected as a net amount within the movement table of intangible
assets in note 9.
(e) Sensitivity to change in key assumptions
Impairment testing for the year ended 30 June 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 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
Bell's
Yenì Raki
Turkey
145
346
688
—
—
44
14
1ppt
3ppt
7ppt
7ppt
(92)
(27)
(95)
(249)
n/a
1ppt
n/a
1ppt
n/a
(9)
n/a
(13)
2ppt
n/a
n/a
n/a
(121)
n/a
n/a
n/a
n/a
10%
n/a
10%
n/a
(15)
n/a
(88)
n/a
n/a
4%
1%
n/a
n/a
(20)
(124)
n/a
n/a
n/a
n/a
n/a
n/a
66%
(69)
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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
40 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.
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.
Cost
At 30 June 2020
Exchange differences
Acquisitions
Sale of businesses
Additions
Disposals
Transfers
At 30 June 2021
Hyperinflation adjustment in respect of Turkey
Exchange differences
Sale of businesses
Additions
Disposals
Transfers
Reclassification to assets held for sale
At 30 June 2022
Depreciation
At 30 June 2020
Exchange differences
Depreciation charge for the year
Sale of businesses
Disposals
At 30 June 2021
Exchange differences
Depreciation charge for the year
Sale of businesses
Disposals
Transfers
Reclassification to assets held for sale
At 30 June 2022
Carrying amount
At 30 June 2022
At 30 June 2021
At 30 June 2020
Land and
buildings
£ million
Plant and
equipment
£ million
Fixtures
and
fittings
£ million
Returnable
bottles and
crates
£ million
Under
construction
£ million
Total
£ million
2,141
(137)
9
(1)
95
(24)
77
2,160
56
107
(4)
230
(65)
177
(8)
4,868
(322)
2
(3)
149
(126)
146
4,714
32
226
(58)
245
(122)
249
(25)
2,653
5,261
597
2,256
(31)
110
—
(18)
658
31
127
(4)
(62)
5
(5)
750
1,903
1,502
1,544
(167)
244
(2)
(113)
2,218
94
277
(50)
(113)
4
(16)
2,414
2,847
2,496
2,612
127
(10)
—
—
9
(7)
2
121
2
1
(3)
8
(15)
10
—
124
86
(8)
15
—
(7)
86
1
14
(2)
(13)
(9)
—
77
47
35
41
575
(55)
—
—
27
(21)
2
528
—
11
(19)
41
(32)
13
—
542
395
(39)
29
—
(14)
371
9
29
(18)
(30)
—
—
361
181
157
180
549
(34)
4
—
367
—
(227)
659
7
45
(1)
612
(3)
(449)
—
870
—
—
—
—
—
—
—
—
—
—
—
—
—
870
659
549
8,260
(558)
15
(4)
647
(178)
—
8,182
97
390
(85)
1,136
(237)
—
(33)
9,450
3,334
(245)
398
(2)
(152)
3,333
135
447
(74)
(218)
—
(21)
3,602
5,848
4,849
4,926
(a) The net book value of land and buildings comprises freeholds of £1,444 million (2021 – £1,218 million), long leaseholds of £3 million (2021 – £3
million) and short leaseholds of £410 million (2021 – £281 million). Depreciation was not charged on £114 million (2021 – £180 million) of land.
(b) Property, plant and equipment is net of a government grant of £153 million (2021 – £133 million) received in prior years in respect of the
construction of a rum distillery in the US Virgin Islands.
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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
40 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.
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.
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:
Hyperinflation adjustment in respect of Turkey
Cost
At 30 June 2020
Exchange differences
Acquisitions
Sale of businesses
Additions
Disposals
Transfers
At 30 June 2021
Exchange differences
Sale of businesses
Additions
Disposals
Transfers
At 30 June 2022
Depreciation
At 30 June 2020
Sale of businesses
Disposals
At 30 June 2021
Exchange differences
Sale of businesses
Disposals
Transfers
At 30 June 2022
Carrying amount
At 30 June 2022
At 30 June 2021
At 30 June 2020
Reclassification to assets held for sale
Exchange differences
Depreciation charge for the year
Depreciation charge for the year
Reclassification to assets held for sale
Land and
buildings
£ million
Plant and
equipment
£ million
Fixtures
and
fittings
£ million
Returnable
bottles and
crates
£ million
Under
construction
£ million
Total
£ million
2,653
5,261
597
2,256
2,141
(137)
9
(1)
95
(24)
77
2,160
56
107
(4)
230
(65)
177
(8)
(31)
110
—
(18)
658
31
127
(4)
(62)
5
(5)
750
1,903
1,502
1,544
4,868
(322)
2
(3)
149
(126)
146
4,714
32
226
(58)
245
(122)
249
(25)
(167)
244
(2)
(113)
2,218
94
277
(50)
(113)
4
(16)
2,414
2,847
2,496
2,612
127
(10)
—
—
9
(7)
2
121
2
1
8
(3)
(15)
10
—
124
86
(8)
15
—
(7)
86
1
14
(2)
(13)
(9)
—
77
47
35
41
575
(55)
—
—
27
(21)
2
528
—
11
(19)
41
(32)
13
—
542
395
(39)
29
—
(14)
371
9
29
(18)
(30)
—
—
361
181
157
180
549
(34)
4
—
367
—
(227)
659
7
45
(1)
612
(3)
(449)
—
870
—
—
—
—
—
—
—
—
—
—
—
—
—
870
659
549
8,260
(558)
15
(4)
647
(178)
—
8,182
97
390
(85)
1,136
(237)
—
(33)
9,450
3,334
(245)
398
(2)
(152)
3,333
135
447
(74)
(218)
—
(21)
3,602
5,848
4,849
4,926
(a) The net book value of land and buildings comprises freeholds of £1,444 million (2021 – £1,218 million), long leaseholds of £3 million (2021 – £3
million) and short leaseholds of £410 million (2021 – £281 million). Depreciation was not charged on £114 million (2021 – £180 million) of land.
(b) Property, plant and equipment is net of a government grant of £153 million (2021 – £133 million) received in prior years in respect of the
construction of a rum distillery in the US Virgin Islands.
Fair value
At 30 June 2020
Exchange differences
Transferred to inventories
Farming cost capitalised
At 30 June 2021
Exchange differences
Transferred to inventories
Fair value change
Farming cost capitalised
At 30 June 2022
Biological
assets
£ million
51
2
(7)
20
66
10
(11)
(5)
34
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 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.
(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
269
(21)
33
(1)
8
(58)
230
26
129
29
(1)
(6)
(54)
353
276
(18)
23
(63)
—
(34)
184
14
56
—
(1)
—
(41)
212
At 30 June 2020
Exchange differences
Additions
Transfers
Acquisitions
Depreciation
At 30 June 2021
Exchange differences
Additions
Transfers
Reclassification to
assets held for sale
Disposal
Depreciation
At 30 June 2022
(b) Lease liabilities
Current lease liabilities
Non-current lease liabilities
32
—
—
(3)
—
—
29
—
—
(29)
—
—
—
—
577
(39)
56
(67)
8
(92)
443
40
185
—
(2)
(6)
(95)
565
2022
£ million
2021
£ million
(85)
(390)
(475)
(82)
(281)
(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 (2021 – £255 million).
(c) Amounts recognised in the consolidated income statement
In the year ended 30 June 2022, other external charges (within other
operating items) included £39 million (2021 – £28 million) in respect
of leases of low value assets and short term leases and £9 million (2021
– £3 million) in respect of variable lease payments. 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 2022
was £154 million (2021 – £179 million).
F
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T
S
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171
13. Other investments
Accounting policies
Other investments are 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.
Cost less allowances or fair value
At 30 June 2020
Exchange differences
Additions
Repayments and disposals
Transfer
At 30 June 2021
Exchange differences
Additions
Repayments and disposals
Fair value adjustment
Step acquisitions
Capitalised interest
Transfer
At 30 June 2022
Loans
£ million
Other
investments
£ million
Total
£ million
7
—
5
(1)
(1)
10
2
6
(1)
—
—
1
—
18
34
(3)
—
—
(1)
30
1
9
(1)
(13)
(6)
—
(1)
19
41
(3)
5
(1)
(2)
40
3
15
(2)
(13)
(6)
1
(1)
37
At 30 June 2022, loans comprise £6 million (2021 – £3 million; 2020 – £4
million) of loans to customers and other third parties, after allowances of
£129 million (2021 – £113 million; 2020 – £127 million), and £12 million
(2021 – £7 million; 2020 – £3 million) of loans to associates.
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14. Post employment benefits
Accounting policies
The group’s principal 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. 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
United Kingdom(1)
Ireland(2)
United States
Date of valuation
1 April 2021
31 December 2018
1 January 2021
(1)
The Diageo Pension Scheme (DPS) closed to new members in November 2005.
Employees who joined Diageo in the United Kingdom between November 2005 and
January 2018, had been eligible to become members of the Diageo Lifestyle Plan (a
cash balance defined benefit plan). Since then, new employees have been eligible to
become members of a Diageo administered defined contribution plan.
(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.
13. Other investments
Accounting policies
14. Post employment benefits
Accounting policies
Other investments are equity investments that are not classified as
The group’s principal post employment funds are defined benefit
investments in associates or joint arrangements nor investments in
plans. In addition, the group has defined contribution plans, unfunded
subsidiaries. They are included in non-current assets. Subsequent to
post employment medical benefit liabilities and other unfunded
initial measurement, other investments are stated at fair value. Gains
defined benefit post employment liabilities. For post employment plans
and losses arising from the changes in fair value are recognised in the
other than defined contribution plans, the amount charged to
income statement or in other comprehensive income on a case by
operating profit is the cost of accruing pension benefits promised to
case basis. Accumulated gains and losses included in other
employees over the year, plus any changes arising on benefits
comprehensive income are not recycled to the income statement.
granted to members by the group during the year. Net finance
Dividends from other investments are recognised in the consolidated
charges comprise the net deficit/asset on the plans at the beginning
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.
Cost less allowances or fair value
At 30 June 2020
Exchange differences
Additions
Transfer
Repayments and disposals
At 30 June 2021
Exchange differences
Additions
Repayments and disposals
Fair value adjustment
Step acquisitions
Capitalised interest
Transfer
At 30 June 2022
Loans
£ million
Other
investments
£ million
Total
£ million
7
—
5
(1)
(1)
(1)
10
2
6
—
—
1
—
18
34
(3)
—
—
(1)
30
1
9
(1)
(13)
(6)
—
(1)
19
41
(3)
5
(1)
(2)
40
3
15
(2)
(13)
(6)
1
(1)
37
At 30 June 2022, loans comprise £6 million (2021 – £3 million; 2020 – £4
million) of loans to customers and other third parties, after allowances of
£129 million (2021 – £113 million; 2020 – £127 million), and £12 million
(2021 – £7 million; 2020 – £3 million) of loans to associates.
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. 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
The most recent funding valuations of the significant defined benefit
plans were carried out as follows:
costs.
Principal plans
United Kingdom(1)
Ireland(2)
United States
Date of valuation
1 April 2021
31 December 2018
1 January 2021
(1)
The Diageo Pension Scheme (DPS) closed to new members in November 2005.
Employees who joined Diageo in the United Kingdom between November 2005 and
January 2018, had been eligible to become members of the Diageo Lifestyle Plan (a
cash balance defined benefit plan). Since then, new employees have been eligible to
become members of a Diageo administered defined contribution plan.
(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.
172
172
Diageo Annual Report 2022
Diageo Annual Report 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.
The amounts charged to the consolidated income statement and
statement of comprehensive income for the group’s defined benefit
plans for the three years ended 30 June 2022 are as follows:
Current service cost and administrative
expenses
Past service gains – ordinary activities
Past service losses – exceptional
Gains on curtailments and settlements
2022
£ million
2021
£ million
2020
£ million
(107)
(105)
(109)
34
—
34
—
(5)
18
50
—
12
Charge to operating profit
(39)
(92)
(47)
Net finance gain in respect of post
employment plans
Charge before taxation(1)
Actual returns less amounts included in
finance income
Experience (losses)/gains
Changes in financial assumptions
Changes in demographic assumptions
Other comprehensive income
Changes in the surplus restriction
Total other comprehensive income
10
(29)
(1,432)
(35)
2,133
(40)
626
(11)
615
5
(87)
(6)
80
125
(183)
16
—
16
9
(38)
774
34
(754)
(14)
40
(2)
38
(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).
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.
(1) The (charge)/income before taxation is in respect of the following countries:
United Kingdom
Ireland
United States
Other
2022
£ million
2021
£ million
2020
£ million
(27)
45
(31)
(16)
(29)
(46)
4
(28)
(17)
(87)
(23)
34
(30)
(19)
(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 – £24 million).
Funded plans
Unfunded plans
The movement in the net surplus for the two years ended 30 June 2022
is set out below:
Plan
assets
£ million
Plan
liabilities
£ million
Net
surplus
£ million
At 30 June 2020
10,422
(10,057)
Exchange differences
Charge before taxation(1)
Other comprehensive income/(loss)(2)
Contributions by the group
Settlements paid(3)
Employee contributions
Benefits paid
At 30 June 2021
Exchange differences
Charge before taxation(1)
Other comprehensive income/(loss)(2)
Contributions by the group
Settlements paid(3)
Employee contributions
Benefits paid
At 30 June 2022
(214)
149
(6)
122
(169)
4
(416)
245
(236)
22
—
169
(4)
416
9,892
(9,445)
93
176
(100)
(205)
(1,432)
2,058
128
(52)
5
(411)
—
52
(5)
411
365
31
(87)
16
122
—
—
—
447
(7)
(29)
626
128
—
—
—
8,399
(7,234)
1,165
(1) Includes net settlement gain of £27 million (F21 - £14 million) and past service gain of
£28 million.
(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).
The plan assets and liabilities by type of post employment benefit and
country is as follows:
Pensions
United Kingdom
Ireland
United States
Other
Post employment medical
Other post employment
2022
2021
Plan
assets
£ million
Plan
liabilities
£ million
Plan
assets
£ million
Plan
liabilities
£ million
6,041
1,645
453
191
2
67
(4,897)
7,341
(6,580)
(1,409)
1,826
(1,926)
(408)
(212)
(225)
(83)
470
186
2
67
(373)
(225)
(262)
(79)
8,399
(7,234)
9,892
(9,445)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The balance sheet analysis of the post employment plans is as follows:
2022
Non-
current
assets(1)
£ million
1,553
—
1,553
Non-
current
liabilities
£ million
(144)
(258)
(402)
2021
Non-
current
assets(1)
£ million
1,018
—
1,018
Non-
current
liabilities
£ million
(279)
(295)
(574)
(1)
Includes surplus restriction of £14 million (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. At 30 June
2022, the DPS had a net surplus of £1,174 million (2021 – £840 million;
2020 – £934 million) and the GIGPS had a net surplus of £221 million
(2021 a deficit of £79 million; 2020 a deficit of £174 million) and other
schemes in a net surplus totaled of £158 million (2021 – £178 million;
2020 - £177 million). Both of these surpluses have been recognised, with
no provision made against them, as 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.
Diageo Annual Report 2022
Diageo Annual Report 2022
173
173
(b) Principal risks and assumptions
The material post employment plans are not exposed to any unusual,
entity-specific or 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.
Rate of general increase in salaries(2)
Rate of increase to pensions in payment
Rate of increase to deferred pensions
Discount rate for plan liabilities
Inflation – CPI
Inflation - RPI
United Kingdom
Ireland
United States(1)
2022
%
3.6
2.9
2.6
3.8
2.6
3.1
2021
%
3.4
3.1
2.5
1.9
2.5
3.0
2020
%
3.2
3.0
2.1
1.5
2.1
2.8
2022
%
3.8
2.2
2.3
3.2
2.4
—
2021
%
3.0
1.7
1.6
1.0
1.6
—
2020
%
2.6
1.4
1.2
1.2
1.2
—
2022
%
—
—
—
4.4
2.3
—
2021
%
—
—
—
2.7
2.3
—
2020
%
—
—
—
2.6
1.4
—
(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.
(2) The salary increase assumptions include an allowance for 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:
Retiring currently at age 65
Male
Female
Currently aged 45, retiring at age 65
Male
Female
United Kingdom(1)
Ireland(2)
United States
2022
Age
2021
Age
2020
Age
2022
Age
2021
Age
2020
Age
2022
Age
2021
Age
87.1
88.7
87.2
88.7
86.4
88.7
87.7
90.0
86.9
89.3
86.6
89.3
85.5
87.2
85.4
87.1
88.5
90.7
88.6
90.8
88.5
90.8
89.3
91.7
88.6
91.1
89.6
92.3
87.0
88.6
86.9
88.5
2020
Age
85.6
87.3
87.2
88.9
(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.
(2) Based on the CMI's S3 mortality tables with scaling factors based on the experience of the plan, with suitable future improvements.
For the significant assumptions, the following sensitivity analyses estimate the potential impacts on the consolidated income statement for the year
ending 30 June 2023 and on the plan liabilities at 30 June 2022:
Benefit/(cost)
Effect of 0.5% increase in discount rate
Effect of 0.5% decrease in discount rate
Effect of 0.5% increase in inflation
Effect of 0.5% decrease in inflation
Effect of one year increase in life expectancy
United Kingdom
Operating
profit
£ million
Profit after
taxation
£ million
Plan
liabilities(1)
£ million
Operating
profit
£ million
Ireland
Profit after
taxation
£ million
United States
Plan
liabilities(1)
£ million
Operating
profit
£ million
Profit after
taxation
£ million
Plan
liabilities(1)
£ million
2
(3)
(2)
2
—
19
(17)
(9)
10
(6)
336
(374)
(246)
260
(171)
1
(1)
(1)
1
—
4
(4)
(3)
3
(2)
96
(108)
(59)
57
(56)
1
(1)
—
—
—
3
(3)
(1)
1
(1)
22
(23)
(10)
9
(17)
(1)
(i)
The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps held by the pension plans.
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).
174
174
Diageo Annual Report 2022
Diageo Annual Report 2022
(b) Principal risks and assumptions
The material post employment plans are not exposed to any unusual,
entity-specific or 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
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
partially offset by an increase in the value of the bonds held by the post
previous 30 June.
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.
(c) Investment and hedging strategy
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 2022, approximately 88% and 90% (2021 – 86% and 90%)
of the UK 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 2022, approximately 70% and 76% (2021 – 62% and 76%) of
the Irish 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 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.
An analysis of the fair value of the plan assets is as follows:
(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
(2) The salary increase assumptions include an allowance for 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:
Rate of general increase in salaries(2)
Rate of increase to pensions in payment
Rate of increase to deferred pensions
Discount rate for plan liabilities
Inflation – CPI
Inflation - RPI
final salary.
Retiring currently at age 65
Currently aged 45, retiring at age 65
Male
Female
Male
Female
United Kingdom
Ireland
United States(1)
2022
%
3.6
2.9
2.6
3.8
2.6
3.1
2021
%
3.4
3.1
2.5
1.9
2.5
3.0
2020
%
3.2
3.0
2.1
1.5
2.1
2.8
2022
%
3.8
2.2
2.3
3.2
2.4
—
2021
%
3.0
1.7
1.6
1.0
1.6
—
2020
%
2.6
1.4
1.2
1.2
1.2
—
2022
%
—
—
—
4.4
2.3
—
2021
%
—
—
—
2.7
2.3
—
United Kingdom(1)
Ireland(2)
United States
2022
Age
2021
Age
2020
Age
2022
Age
2021
Age
2020
Age
2022
Age
2021
Age
87.1
88.7
87.2
88.7
86.4
88.7
87.7
90.0
86.9
89.3
86.6
89.3
85.5
87.2
85.4
87.1
88.5
90.7
88.6
90.8
88.5
90.8
89.3
91.7
88.6
91.1
89.6
92.3
87.0
88.6
86.9
88.5
2020
%
—
—
—
2.6
1.4
—
2020
Age
85.6
87.3
87.2
88.9
(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.
(2) Based on the CMI's S3 mortality tables with scaling factors based on the experience of the plan, with suitable future improvements.
For the significant assumptions, the following sensitivity analyses estimate the potential impacts on the consolidated income statement for the year
ending 30 June 2023 and on the plan liabilities at 30 June 2022:
Benefit/(cost)
Effect of 0.5% increase in discount rate
Effect of 0.5% decrease in discount rate
Effect of 0.5% increase in inflation
Effect of 0.5% decrease in inflation
Effect of one year increase in life expectancy
United Kingdom
United States
Operating
profit
£ million
Profit after
taxation
£ million
Plan
liabilities(1)
£ million
Operating
profit
£ million
Plan
liabilities(1)
£ million
Operating
profit
£ million
Profit after
taxation
£ million
Plan
liabilities(1)
£ million
Ireland
Profit after
taxation
£ million
2
(3)
(2)
2
—
19
(17)
(9)
10
(6)
336
(374)
(246)
260
(171)
1
(1)
(1)
1
—
4
(4)
(3)
3
(2)
96
(108)
(59)
57
(56)
1
(1)
—
—
—
3
(3)
(1)
1
(1)
22
(23)
(10)
9
(17)
(1)
(i)
The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps held by the pension plans.
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).
United Kingdom
£ million
Ireland
£ million
2022
United States and other
£ million
Total
£ million
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
Equities
Bonds
Fixed-interest government
Inflation-linked government
Investment grade corporate
Non-investment grade
Loan securities
23
2
—
—
44
11
Repurchase agreements
2,400
Liability Driven Investment (LDI)
Property
Hedge funds
Interest rate and inflation swaps
Cash and other
—
28
—
—
24
Total bid value of assets
2,532
1,218
86
—
68
557
1,271
(215)
119
716
107
(900)
481
3,508
—
—
—
—
2
—
—
—
—
—
—
7
9
319
30
199
388
200
98
—
46
74
92
37
154
1,637
70
49
1
25
1
—
—
—
—
—
—
—
146
105
152
1
222
1
—
—
—
1
5
—
80
567
93
51
1
25
47
11
2,400
—
28
—
—
31
2,687
1,642
268
200
678
758
1,369
(215)
165
791
204
(863)
715
5,712
United Kingdom
£ million
Ireland
£ million
2021
United States and other
£ million
Total
£ million
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
—
604
2
306
70
106
72
1,016
Equities
Bonds
Fixed-interest government
Inflation-linked government
Investment grade corporate
Non-investment grade
Loan securities
Repurchase agreements
4,512
Liability Driven Investment (LDI)
Property
Hedge funds
Interest rate and inflation swaps
Cash and other
2
—
—
—
12
Total bid value of assets
4,700
86
—
13
17
58
61
—
499
134
1,731
(904)
210
685
101
(994)
514
2,641
—
—
—
2
1
—
—
—
—
—
2
7
81
239
355
115
278
—
66
72
139
108
60
47
—
24
2
—
—
—
—
—
—
—
1,819
143
4
—
367
10
—
—
—
1
4
—
90
582
133
—
37
21
59
4,512
2
—
—
—
14
146
239
1,221
259
2,009
(904)
276
758
244
(886)
664
4,850
5,042
9,892
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Total
1,735
319
201
703
805
1,380
2,185
165
819
204
(863)
746
8,399
Total
1,088
279
239
1,258
280
2,068
3,608
278
758
244
(886)
678
(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 2023 are estimated to be approximately £70 million.
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175
175
(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 2022 held inventory with a book value of £561
million (2021 – £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. 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 (£172 million) or the amount of the deficit at each triennial valuation if less. The 31
December 2021 triennial actuarial valuation 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:
Maturity analysis of benefits expected to be paid
Within one year
Between 1 to 5 years
Between 6 to 15 years
Between 16 to 25 years
Beyond 25 years
Total
Average duration of the defined benefit obligation
United Kingdom
2022
£ million
2021
£ million
Ireland
2022
£ million
United States
2021
£ million
2022
£ million
2021
£ million
295
1,082
2,556
2,252
2,787
8,972
years
15
288
1,112
2,606
2,314
2,840
9,160
years
18
70
353
704
634
768
84
338
656
588
746
2,529
2,412
years
15
years
18
58
187
310
183
174
912
years
9
52
145
247
145
138
727
years
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 on 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 21.
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(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 2022 held inventory with a book value of £561
million (2021 – £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. 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 (£172 million) or the amount of the deficit at each triennial valuation if less. The 31
December 2021 triennial actuarial valuation is currently underway and it will be agreed by Diageo and the trustee by the end of September.
The following table provides information on the timing of the benefit payments and the average duration of the defined benefit obligations and the
(e) Timing of benefit payments
distribution of the timing of benefit payments:
Maturity analysis of benefits expected to be paid
Within one year
Between 1 to 5 years
Between 6 to 15 years
Between 16 to 25 years
Beyond 25 years
Total
Average duration of the defined benefit obligation
United Kingdom
2022
£ million
2021
£ million
Ireland
2022
£ million
United States
2021
£ million
2022
£ million
2021
£ million
295
1,082
2,556
2,252
2,787
8,972
years
15
288
1,112
2,606
2,314
2,840
9,160
years
18
70
353
704
634
768
years
15
84
338
656
588
746
years
18
2,529
2,412
58
187
310
183
174
912
years
9
52
145
247
145
138
727
years
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 on 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 21.
15. Working capital
(b) Trade and other receivables
Trade receivables
Interest receivable
VAT recoverable and other
prepaid taxes
Other receivables
Prepayments
Accrued income
Current
assets
£ million
2,155
18
290
158
290
22
2022
2021
Non-current
assets
£ million
Current
assets
£ million
Non-current
assets
£ million
—
—
15
13
9
—
1,817
35
216
148
150
19
—
—
18
18
—
—
36
2,933
37
2,385
At 30 June 2022, approximately 29%, 15% and 9% of the group’s trade
receivables of £2,155 million are due from counterparties based in the
United States, United 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:
Not overdue
Overdue 1 – 30 days
Overdue 31 – 60 days
Overdue 61 – 90 days
Overdue 91 – 180 days
Overdue more than 180 days
2022
£ million
2021
£ million
2,114
1,771
19
8
5
5
4
15
8
6
7
10
2,155
1,817
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Trade and other receivables are disclosed net of expected credit loss
allowance for doubtful debts, an analysis of which is as follows:
Balance at beginning of the year
Exchange differences
Income statement charge/(release)
Written off
2022
£ million
2021
£ million
2020
£ million
112
6
21
(21)
118
160
(13)
(15)
(20)
112
113
(3)
55
(5)
160
Management has considered the credit risk on trade and other
receivables. At 30 June 2022, this resulted in a charge of £21 million for
impairment provisions recognised in the income statement. At 30 June
2020, £29 million out of the charge of £55 million was related to the
expected credit loss allowance due to the global financial uncertainty
arising from the Covid-19 pandemic.
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 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. This assessment
considers the commercial purpose of the facility, whether payment
terms are similar to customary payment 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
Raw materials and consumables
Work in progress
Maturing inventories
Finished goods and goods for resale
2022
£ million
2021
£ million
489
86
348
60
5,229
4,668
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:
Raw materials and consumables
Maturing inventories
2022
£ million
2021
£ million
15
17
3,713
3,296
3,728
3,313
Inventories are disclosed net of provisions for obsolescence, an analysis
of which is as follows:
Balance at beginning of the year
Exchange differences
Income statement charge
Utilised
Sale of businesses
2022
£ million
2021
£ million
2020
£ million
96
6
6
(13)
(1)
94
98
(8)
20
(14)
—
96
63
—
47
(12)
—
98
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177
177
(c) Trade and other payables
Trade payables
Interest payable
Tax and social security excluding income tax
Other payables
Accruals
Deferred income
Dividend payable to non-controlling interests
2022
Current
liabilities
£ million
2,705
143
696
600
1,635
90
18
5,887
Non-current
liabilities
£ million
—
—
—
380
—
—
—
2021
Current
liabilities
£ million
2,014
124
656
606
1,152
72
24
Non-current
liabilities
£ million
—
—
—
338
—
—
—
380
4,648
338
Interest payable at 30 June 2022 includes interest on non-derivative financial instruments of £141 million (2021 – £122 million). Accruals at 30 June
2022 include £613 million (2021 – £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
£72 million (2021 – £79 million). Non-current liabilities include net present value of contingent consideration in respect of prior acquisitions of £353
million (2021 – £320 million). For further information on contingent consideration, please refer to note 16 (g).
Together with the group’s partner banks, supply chain financing (SCF) facilities are provided to 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. Payment terms continue
to be agreed directly between the group and suppliers, independently from the availability of SCF facilities. Liabilities are settled in accordance with
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 acquisition of non-
current assets. At 30 June 2022, the amount that has been subject to SCF and accounted for as trade payables was £750 million (2021 –
£465 million).
(d) Provisions
At 30 June 2021
Exchange differences
Disposal of businesses
Provisions charged during the year
Provisions utilised during the year
Transfers from other payables
Unwinding of discounts
At 30 June 2022
Current liabilities
Non-current liabilities
Thalidomide
£ million
190
—
—
—
(16)
—
4
178
12
166
178
Other
£ million
Total
£ million
222
18
(6)
65
(73)
12
1
239
147
92
239
412
18
(6)
65
(89)
12
5
417
159
258
417
(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.
(ii) The largest item in other provisions at 30 June 2022 is £49 million (2021 – £45 million) in respect of employee deferred compensation plans which
will be utilised when employees leave the group.
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Interest payable at 30 June 2022 includes interest on non-derivative financial instruments of £141 million (2021 – £122 million). Accruals at 30 June
2022 include £613 million (2021 – £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
£72 million (2021 – £79 million). Non-current liabilities include net present value of contingent consideration in respect of prior acquisitions of £353
million (2021 – £320 million). For further information on contingent consideration, please refer to note 16 (g).
Together with the group’s partner banks, supply chain financing (SCF) facilities are provided to 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. Payment terms continue
to be agreed directly between the group and suppliers, independently from the availability of SCF facilities. Liabilities are settled in accordance with
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 acquisition of non-
current assets. At 30 June 2022, the amount that has been subject to SCF and accounted for as trade payables was £750 million (2021 –
2022
Non-current
liabilities
£ million
2021
Current
liabilities
£ million
2,014
124
656
606
1,152
72
24
Non-current
liabilities
£ million
338
—
—
—
—
—
—
380
—
—
—
—
—
—
380
4,648
338
Current
liabilities
£ million
2,705
143
696
600
1,635
90
18
5,887
Thalidomide
£ million
190
Other
£ million
Total
£ million
(16)
—
—
—
—
4
178
12
166
178
222
18
(6)
65
(73)
12
1
239
147
92
239
412
18
(6)
65
(89)
12
5
417
159
258
417
(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.
(ii) The largest item in other provisions at 30 June 2022 is £49 million (2021 – £45 million) in respect of employee deferred compensation plans which
will be utilised when employees leave the group.
(c) Trade and other payables
Tax and social security excluding income tax
Trade payables
Interest payable
Other payables
Accruals
Deferred income
Dividend payable to non-controlling interests
£465 million).
(d) Provisions
At 30 June 2021
Exchange differences
Disposal of businesses
Provisions charged during the year
Provisions utilised during the year
Transfers from other payables
Unwinding of discounts
At 30 June 2022
Current liabilities
Non-current liabilities
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Diageo Annual Report 2022
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.
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 income statement and financial assets at fair value through other comprehensive income.
The accounting policies for other investments and loans are described in note 13, for trade and other receivables and payables in note 15 and
for cash and cash equivalents in note 17.
Financial assets and liabilities at fair value through 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. Financial liabilities in respect of the Zacapa 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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 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 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.
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, 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 2022 and 30 June 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 receives a quarterly report on the key activities of the treasury department, however any exposures which differ from the
defined benchmarks are reported as they arise.
Diageo Annual Report 2022
Diageo Annual Report 2022
179
179
The table below sets out the average monthly net borrowings and
effective interest rate:
Average monthly net borrowings
Effective interest rate
2022
£ million
2021
£ million
2020
£ million
12,692
12,702
12,708
2022
%
2.7
2021
%
2.7
2020
%
2.6
(i) For this calculation, net interest charge excludes fair value adjustments to derivative
financial instruments and average monthly net borrowings include the impact of interest
rate swaps that are no longer in a hedge relationship but 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 were discontinued after 31
December 2021, except for the majority of the US dollar settings which
will be discontinued after 30 June 2023. There have been amendments
to the contractual terms of IBOR-referenced interest rates and the
corresponding update of the hedge designations. By 30 June 2022,
changes required to systems and processes in relation to the fair
valuation of financial instruments 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
assumes 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 altered by the IBOR reform. The derivative hedging instruments
provide a close approximation to the extent and nature of the risk
exposure the group manages through hedging relationships.
Included in floating rate net borrowings are interest rate swaps
designated in fair value hedges, with a notional amount of
£2,893 million (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.
(c) Commodity price risk
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 arising from
commodity exposures below 75 bps of forecast gross 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.
(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.
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 2022, the
group’s guidance was to maintain total net investment Value at Risk to
total net asset value below 20%, where Value at Risk is defined as the
maximum amount of loss over a one-year period with a 95%
probability confidence level.
At 30 June 2022, foreign currency borrowings designated in net
investment hedge relationships amounted to £8,742 million (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 forecast transactional foreign currency
risk on the net US dollar exposure up to 24 months, targeting 75%
coverage for the current financial year, and on other currency
exposures up to 18 months. The group’s exposure to foreign currency
risk arising principally on forecasted sales transactions is managed
using forward agreements and options.
(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 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
2022 the group’s policy was to maintain fixed rate borrowings within a
band of 40% to 90%. 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 2022 and 2021 is as follows:
Fixed rate
Floating rate(1)
Impact of financial derivatives
and fair value adjustments
Lease liabilities
Net borrowings
2022
2021
£ million
11,070
2,612
(20)
475
%
£ million
78
19
9,278
2,521
—
3
(53)
363
%
77
21
(1)
3
14,137
100
12,109
100
(1)
The floating rate portion of net borrowings includes cash and cash equivalents,
collaterals, floating rate loans and bonds and bank overdrafts.
180
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Diageo Annual Report 2022
Diageo Annual Report 2022
The table below sets out the average monthly net borrowings and
effective interest rate:
Average monthly net borrowings
Effective interest rate
2022
£ million
2021
£ million
2020
£ million
12,692
12,702
12,708
2022
%
2.7
2021
%
2.7
2020
%
2.6
(i) For this calculation, net interest charge excludes fair value adjustments to derivative
financial instruments and average monthly net borrowings include the impact of interest
rate swaps that are no longer in a hedge relationship but 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 were discontinued after 31
December 2021, except for the majority of the US dollar settings which
will be discontinued after 30 June 2023. There have been amendments
to the contractual terms of IBOR-referenced interest rates and the
corresponding update of the hedge designations. By 30 June 2022,
changes required to systems and processes in relation to the fair
valuation of financial instruments 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
In line with the relief provided by the amendment, the group
assumes 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 altered by the IBOR reform. The derivative hedging instruments
provide a close approximation to the extent and nature of the risk
exposure the group manages through hedging relationships.
Included in floating rate net borrowings are interest rate swaps
designated in fair value hedges, with a notional amount of
£2,893 million (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.
(c) Commodity price risk
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 arising from
commodity exposures below 75 bps of forecast gross 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.
Hedge of foreign currency debt
not material.
The group uses cross currency interest rate swaps to hedge the foreign
currency risk associated with certain foreign currency denominated
(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.
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 2022, the
group’s guidance was to maintain total net investment Value at Risk to
total net asset value below 20%, where Value at Risk is defined as the
maximum amount of loss over a one-year period with a 95%
probability confidence level.
At 30 June 2022, foreign currency borrowings designated in net
investment hedge relationships amounted to £8,742 million (2021 –
£7,780 million), including financial derivatives.
borrowings.
Transaction exposure hedging
The group’s policy is to hedge forecast transactional foreign currency
risk on the net US dollar exposure up to 24 months, targeting 75%
coverage for the current financial year, and on other currency
exposures up to 18 months. The group’s exposure to foreign currency
risk arising principally on forecasted sales transactions is managed
using forward agreements and options.
(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 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
2022 the group’s policy was to maintain fixed rate borrowings within a
band of 40% to 90%. 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 2022 and 2021 is as follows:
Fixed rate
Floating rate(1)
Impact of financial derivatives
and fair value adjustments
Lease liabilities
Net borrowings
2022
2021
£ million
11,070
2,612
(20)
475
%
£ million
78
19
9,278
2,521
—
3
(53)
363
%
77
21
(1)
3
14,137
100
12,109
100
(1)
The floating rate portion of net borrowings includes cash and cash equivalents,
collaterals, floating rate loans and bonds and bank overdrafts.
(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 2022 and 30 June
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 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 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)(1) (2)
2022
£ million
2021
£ million
2022
£ million
2021
£ million
13
(13)
(33)
28
13
(13)
(32)
27
31
(30)
23
(22)
(1,125)
(1,008)
922
825
0.5% decrease in interest rates
0.5% increase in interest rates
10% weakening of sterling
10% strengthening of sterling
(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.
(2) The impact on the consolidated statement of comprehensive income includes the
impact on the income statement.
(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 £5,445 million (2021 –
£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 investment grade banks
and financial institutions, and 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, 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 2022,
the collateral held under these agreements amounted to $23 million
(£19 million) (2021 – $136 million (£98 million)).
Business related credit risk
Exposures from loan, trade and other receivables 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 of Diageo 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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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181
181
Contractual cash flows
2022
Borrowings(1)
Interest on borrowings(1)(2)
Lease capital repayments
Lease future interest payments
Trade and other financial liabilities(3)
Non-derivative financial liabilities
Cross currency swaps (gross)
Receivable
Payable
Other derivative instruments (net)
Derivative instruments(2)
2021
Borrowings(1)
Interest on borrowings(1)(2)
Lease capital repayments
Lease future interest payments
Trade and other financial liabilities(3)
Non-derivative financial liabilities
Cross currency swaps (gross)
Receivable
Payable
Other derivative instruments (net)
Derivative instruments(2)
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
(16,380)
(16,020)
(1,524)
(427)
(85)
(13)
(4,765)
(6,814)
851
(783)
(86)
(18)
(1,859)
(390)
(82)
(9)
(3,800)
(6,140)
57
(41)
143
159
(2,842)
(626)
(107)
(20)
(123)
(2,738)
(560)
(61)
(16)
(142)
(9,276)
(1,622)
(222)
(44)
(126)
(3,235)
(475)
(93)
(5,156)
(3,718)
(3,517)
(11,290)
(25,339)
90
(56)
(123)
(89)
90
(56)
(78)
(44)
(2,590)
(2,788)
(552)
(92)
(12)
(71)
(467)
(45)
(8)
(108)
1,442
(958)
(65)
419
(7,498)
(1,375)
(144)
(25)
(191)
2,473
(1,853)
(352)
268
(14,735)
(2,784)
(363)
(54)
(4,170)
(3,317)
(3,416)
(9,233)
(22,106)
780
(811)
54
23
79
(56)
—
23
1,294
(986)
(23)
285
2,210
(1,894)
174
490
(141)
(475)
—
(5,145)
(21,781)
—
—
—
22
(14,727)
(122)
(363)
—
(4,125)
(19,337)
—
—
—
312
For the purpose of these tables, borrowings are defined as gross borrowings excluding lease liabilities and fair value of derivative instruments as disclosed in note 17.
(1)
(2) Carrying amount of interest on borrowings, interest on derivatives and interest on other payable is included within interest payable in note 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:
Expiring within one year
Expiring between one and two years
Expiring after two years
2022
£ million
2021
£ million
793
103
1,893
2,789
540
691
1,287
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
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.
(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 Creation & Products Inc., the
owner of the Zacapa rum brand, to Diageo. The liability is fair valued
and as at 30 June 2022 an amount of £216 million (30 June 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 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 2024, the fair value of the liability would increase by
approximately £69 million.
182
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Diageo Annual Report 2022
Contractual cash flows
2022
Borrowings(1)
Interest on borrowings(1)(2)
Lease capital repayments
Lease future interest payments
Trade and other financial liabilities(3)
Non-derivative financial liabilities
Cross currency swaps (gross)
Receivable
Payable
Other derivative instruments (net)
Derivative instruments(2)
2021
Borrowings(1)
Interest on borrowings(1)(2)
Lease capital repayments
Lease future interest payments
Trade and other financial liabilities(3)
Non-derivative financial liabilities
Cross currency swaps (gross)
Receivable
Payable
Other derivative instruments (net)
Derivative instruments(2)
Expiring within one year
Expiring between one and two years
Expiring after two years
(16,380)
(16,020)
(3,718)
(3,517)
(11,290)
(25,339)
(1,524)
(427)
(85)
(13)
(4,765)
(6,814)
851
(783)
(86)
(18)
(1,859)
(390)
(82)
(9)
(3,800)
(6,140)
57
(41)
143
159
(2,842)
(626)
(107)
(20)
(123)
(2,738)
(560)
(61)
(16)
(142)
(2,590)
(2,788)
90
(56)
(123)
(89)
(552)
(92)
(12)
(71)
780
(811)
54
23
90
(56)
(78)
(44)
(467)
(45)
(8)
(108)
79
(56)
—
23
(9,276)
(1,622)
(222)
(44)
(126)
1,442
(958)
(65)
419
(7,498)
(1,375)
(144)
(25)
(191)
1,294
(986)
(23)
285
(3,235)
(475)
(93)
(5,156)
2,473
(1,853)
(352)
268
(14,735)
(2,784)
(363)
(54)
(4,170)
2,210
(1,894)
174
490
(3,317)
(3,416)
(9,233)
(22,106)
Carrying
amount at
balance
sheet date
£ million
(141)
(475)
—
(5,145)
(21,781)
—
—
—
22
(14,727)
(122)
(363)
—
(4,125)
(19,337)
—
—
—
312
(1)
For the purpose of these tables, borrowings are defined as gross borrowings excluding lease liabilities and fair value of derivative instruments as disclosed in note 17.
(2) Carrying amount of interest on borrowings, interest on derivatives and interest on other payable is included within interest payable in note 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:
(g) Fair value measurements
2022
£ million
2021
£ million
793
103
1,893
2,789
540
691
1,287
2,518
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
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
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.
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 Creation & Products Inc., the
owner of the Zacapa rum brand, to Diageo. The liability is fair valued
and as at 30 June 2022 an amount of £216 million (30 June 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 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 2024, the fair value of the liability would increase by
approximately £69 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
and liabilities in the year ended 30 June 2022.
The group’s financial assets and liabilities measured at fair value are categorised as follows:
Included in other financial liabilities, the contingent consideration on acquisition of businesses represents the present value of payments up to £381
million linked to certain performance targets which are expected to be paid over the next eight years.
There were no significant changes in the measurement and valuation techniques, or significant transfers between the levels of the financial assets
Derivative assets
Derivative liabilities
Valuation techniques based on observable market input (Level 2)
Financial assets - other
Financial liabilities - other
Valuation techniques based on unobservable market input (Level 3)
2022
£ million
2021
£ million
480
(456)
24
184
(587)
(403)
443
(129)
314
138
(578)
(440)
In the years ended 30 June 2022 and 30 June 2021, the increase in financial assets - other of £46 million (2021 – £22 million) is principally in respect
of acquisitions.
The movements in level 3 instruments, measured on a recurring basis, are as follows:
At the beginning of the year
Net (losses)/gains included in the income statement
Net (losses)/gains included in exchange in other comprehensive income
Net losses included in retained earnings
Acquisitions
Settlement of liabilities
At the end of the year
Contingent
consideration
recognised on
acquisition of
businesses(1)
2022
£ million
Zacapa
financial
liability
2021
£ million
(429)
(167)
62
(39)
—
(70)
105
(371)
(7)
21
(2)
—
6
(149)
Contingent
consideration
recognised on
acquisition of
businesses(1)
2021
£ million
(249)
(47)
31
—
(253)
89
(429)
Zacapa
financial
liability
2022
£ million
(149)
(20)
(26)
(34)
—
13
(216)
(1)
Included in the balance at 30 June 2022 is £157 million in respect of the acquisition of Aviation Gin and Davos 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. Strength of the economic relationship between the hedged items and the hedging 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. 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.
The notional amounts, contractual maturities and rates of the hedging instruments designated in hedging relationships as of 30 June 2022 and
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
30 June 2021 by the main risk categories are as follows:
2022
Net investment hedges
Derivatives in net investment hedges of foreign operations
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
Notional
amounts
£ million
11
1,694
1,874
234
Maturity
Range of hedged rates(1)
July 2022
Turkish lira 22.27
April 2023 - April 2043
US dollar 1.22 - 1.88
September 2022 - June 2024
US dollar 1.22 - 1.42, euro 1.13 - 1.17
July 2022 - March 2024 Natural Gas: 1.67 - 3.57 GBP/therm(ec)
LME Aluminium: 2,009 - 3,399 USD/Mt
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
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
11
1,475
1,303
93
July 2021
Turkish lira 11.86 - 12.22
April 2023 - April 2043
US dollar 1.22 - 1.88
September 2021 - December 2022
US dollar 1.19 - 1.42, euro 1.07 - 1.16
July 2021 - May 2023
Corn: 3.63 - 5.17 USD/Bu
LME Aluminium: 1,631 - 2,421 USD/Mt
Derivatives in fair value hedge (interest rate risk)
4,646
October 2021 - April 2030
(0.01) - 3.09%
(1)
In case of derivatives in cash flow hedges (commodity price risk and foreign currency risk), the range of the most significant contract’s hedged rates are presented.
182
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Diageo Annual Report 2022
183
183
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 gain of £124 million (2021 – £157 million loss; 2020 – £173 million gain) was recognised in other
comprehensive income due to changes in fair value. A loss of £42 million was transferred out of other comprehensive income to other operating
expenses and a gain of £239 million to other finance charges, respectively, (2021 – a loss of £10 million and a loss of £175 million; 2020 – a loss of
£42 million and a gain of £75 million) to offset the foreign exchange impact on the underlying transactions. A gain of £46 million (2021 – £2 million
gain, 2020 – £8 million 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 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 2022 and are included within borrowings. The notional amount for cash flow
hedges of foreign currency debt at 30 June 2022 was £1,694 million (2021 – £1,475 million).
For cash flow hedges of forecast transactions at 30 June 2022, based on year end interest and exchange rates, a gain to the income statement
of £18 million in the year ending 30 June 2023 and a loss of £7 million in the year ending 30 June 2024 is expected to be recognised.
In respect of hedges of foreign currency borrowings that are no longer applicable at 30 June 2022, a loss of £19 million (2021 – a loss of £20
million) was reported in reserves. There was no significant ineffectiveness on net investment and cash flow hedges during the year ended 30 June
2022.
The £4,444 million (2021 – £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 2022 and the carrying amount of hedged items are included within borrowings in the
consolidated balance sheet.
For fair value hedges that are no longer applicable, the accumulated fair value changes shown on the consolidated balance sheet at 30 June
2022 was £1 million (2021 – £5 million).
The following table sets out information regarding the effectiveness of hedging relationships designated by the group, as well as the impacts on
the income statement and other comprehensive income:
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
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
Derivatives in fair value hedge (interest rate risk)
Fair value hedge hedged item
Instruments in fair value hedge relationship
2021
Net investment hedges
—
154
53
16
63
(65)
(2)
—
5
239
(11)
46
(346)
341
(5)
(6)
(130)
32
—
—
—
Derivatives in net investment hedges of foreign operations
—
—
3
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
Derivatives in fair value hedge (interest rate risk)
Fair value hedge hedged item
Instruments in fair value hedge relationship
469
(58)
(9)
189
(189)
—
(175)
(26)
2
(126)
124
(2)
(123)
111
39
—
—
—
(6)
(20)
11
(44)
—
—
—
(3)
(17)
26
(16)
—
—
—
(1)
367
(77)
50
(283)
276
(7)
—
154
53
16
63
(65)
(2)
184
184
Diageo Annual Report 2022
Diageo Annual Report 2022
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 gain of £124 million (2021 – £157 million loss; 2020 – £173 million gain) was recognised in other
comprehensive income due to changes in fair value. A loss of £42 million was transferred out of other comprehensive income to other operating
expenses and a gain of £239 million to other finance charges, respectively, (2021 – a loss of £10 million and a loss of £175 million; 2020 – a loss of
£42 million and a gain of £75 million) to offset the foreign exchange impact on the underlying transactions. A gain of £46 million (2021 – £2 million
gain, 2020 – £8 million 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 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 2022 and are included within borrowings. The notional amount for cash flow
hedges of foreign currency debt at 30 June 2022 was £1,694 million (2021 – £1,475 million).
For cash flow hedges of forecast transactions at 30 June 2022, based on year end interest and exchange rates, a gain to the income statement
of £18 million in the year ending 30 June 2023 and a loss of £7 million in the year ending 30 June 2024 is expected to be recognised.
In respect of hedges of foreign currency borrowings that are no longer applicable at 30 June 2022, a loss of £19 million (2021 – a loss of £20
million) was reported in reserves. There was no significant ineffectiveness on net investment and cash flow hedges during the year ended 30 June
The £4,444 million (2021 – £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 2022 and the carrying amount of hedged items are included within borrowings in the
For fair value hedges that are no longer applicable, the accumulated fair value changes shown on the consolidated balance sheet at 30 June
2022.
consolidated balance sheet.
2022 was £1 million (2021 – £5 million).
The following table sets out information regarding the effectiveness of hedging relationships designated by the group, as well as the impacts on
the income statement and other comprehensive income:
At the beginning
Consolidated Income
of the year
£ million
statement
£ million
Consolidated
statement of
comprehensive
income
£ million
Other
£ million
At the end
of the year
£ million
2022
Net investment hedges
Cash flow hedges
Derivatives in net investment hedges of foreign operations
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
Derivatives in fair value hedge (interest rate risk)
Fair value hedge hedged item
Instruments in fair value hedge relationship
2021
Net investment hedges
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Fair value hedges
Derivatives in fair value hedge (interest rate risk)
Fair value hedge hedged item
Instruments in fair value hedge relationship
—
154
53
16
63
(65)
(2)
469
(58)
(9)
189
(189)
—
—
239
(11)
46
(346)
341
(5)
(175)
(26)
2
(126)
124
(2)
(6)
(130)
32
5
—
—
—
(123)
111
39
—
—
—
(6)
(20)
11
(44)
—
—
—
(3)
(17)
26
(16)
—
—
—
(1)
367
(77)
50
(283)
276
(7)
—
154
53
16
63
(65)
(2)
Derivatives in net investment hedges of foreign operations
—
—
3
(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
2022
Other investments and loans(1)
Trade and other receivables
Cash and cash equivalents
Derivatives in fair value hedge (interest rate risk)
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Other instruments
Leases
Total other financial assets
Total financial assets
Borrowings(2)
Trade and other payables
Derivatives in fair value hedge (interest rate risk)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Derivatives in net investment hedge
Other instruments
Leases
Total other financial liabilities
Total financial liabilities
Total net financial (liabilities)/assets
2021
Other investments and loans(1)
Trade and other receivables
Cash and cash equivalents
Derivatives in fair value hedge (interest rate risk)
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Derivatives in cash flow hedge (commodity price risk)
Other instruments
Leases
Total other financial assets
Total financial assets
Borrowings(2)
Trade and other payables
Derivatives in fair value hedge (interest rate risk)
Derivatives in cash flow hedge (foreign currency debt)
Derivatives in cash flow hedge (foreign currency risk)
Other instruments
Leases
Total other financial liabilities
Total financial liabilities
Total net financial (liabilities)/assets
180
—
—
1
367
32
57
136
—
593
773
—
(371)
(284)
(109)
(7)
(1)
(271)
—
(672)
(1,043)
(270)
121
—
—
106
205
61
16
55
—
443
564
—
(429)
(43)
(51)
(8)
(176)
—
(278)
(707)
(143)
4
—
—
—
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
—
—
4
17
—
—
—
—
—
—
—
—
—
15
2,365
2,285
—
—
—
—
—
3
3
1
605
—
—
—
—
—
—
—
—
200
2,970
2,285
1
367
32
57
136
3
596
—
2,933
2,285
—
43
15
57
136
—
251
4,668
606
6,051
5,469
200
37
—
1
324
17
—
—
3
345
582
(16,020)
—
(16,020)
(1,522)
(14,498)
(4,774)
(1,122)
(6,267)
(5,887)
—
—
—
—
(117)
(475)
(592)
—
—
—
—
—
—
—
(284)
(109)
(7)
(1)
(388)
(475)
(1,264)
(1)
(81)
(5)
(1)
(388)
(85)
(561)
(380)
(283)
(28)
(2)
—
—
(390)
(703)
(21,386)
(1,122)
(23,551)
(7,970)
(15,581)
(16,718)
(516)
(17,500)
(2,501)
(14,999)
8
2,017
2,749
—
—
—
—
—
5
5
2
404
—
—
—
—
—
—
—
—
148
2,421
2,749
106
205
61
16
55
5
448
—
2,385
2,749
4
—
57
14
46
—
121
17
4,779
406
5,766
5,255
—
—
—
—
—
—
—
—
—
(14,727)
(3,580)
—
—
—
(91)
(363)
(454)
—
(14,727)
(1,862)
(12,865)
(977)
(4,986)
(4,648)
(338)
—
—
—
—
—
—
(43)
(51)
(8)
(267)
(363)
(732)
—
—
(5)
(261)
(82)
(348)
(43)
(51)
(3)
(6)
(281)
(384)
(18,761)
(977)
(20,445)
(6,858)
(13,587)
17
(13,982)
(571)
(14,679)
(1,603)
(13,076)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
148
36
—
102
205
4
2
9
5
327
511
(1) Other investments and loans are including those in respect of associates.
(2) Borrowings are defined as gross borrowings excluding lease liabilities and the fair value of derivative instruments.
At 30 June 2022 and 30 June 2021, the carrying values of cash and cash equivalents, other financial assets and liabilities approximate fair values. At
30 June 2022, the fair value of borrowings, based on unadjusted quoted market data, was £15,628 million (2021 – £15,895 million).
184
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Diageo Annual Report 2022
Diageo Annual Report 2022
185
185
(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 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
2022, the adjusted net borrowings (£14,539 million) to adjusted EBITDA
ratio was 2.5 times. For this calculation net borrowings are adjusted by
post employment benefit liabilities before tax (£402 million) whilst
adjusted EBITDA (£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.
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
foreign currency forwards and swaps used to manage borrowings) less
cash and cash equivalents.
Bank overdrafts
Bank and other loans
Credit support obligations
€900 million 0.25% bonds due 2021
$300 million 8% bonds due 2022(1)
$1,000 million 2.875% bonds due 2022(1)
$1,350 million 2.625% bonds due 2023
Fair value adjustment to borrowings
Borrowings due within one year
$300 million 8% bonds due 2022(1)
$1,350 million 2.625% bonds due 2023
€600 million 0.125% bonds due 2023
$500 million 3.5% bonds due 2023
$600 million 2.125% bonds due 2024
€500 million 1.75% bonds due 2024
€500 million 0.5% bonds due 2024
$750 million 1.375% bonds due 2025
€600 million 1% bonds due 2025
€850 million 2.375% bonds due 2026
£500 million 1.75% bonds due 2026
€750 million 1.875% bonds due 2027
€500 million 1.5% bonds due 2027
€700 million 0.125% bonds due 2028
$500 million 3.875% bonds due 2028
£300 million 2.375% bonds due 2028
$1,000 million 2.375% bonds due 2029
£300 million 2.875% bonds due 2029
€750 million 1.15% bonds due 2029
$1,000 million 2% bonds due 2030
€1,000 million 2.5% bonds due 2032
$750 million 2.125% bonds due 2032
£400 million 1.25% bonds due 2033
€900 million 1.15% bonds due 2034
$400 million 7.45% bonds due 2035(1)
$600 million 5.875% bonds due 2036
£600 million 2.75% bonds due 2038
$500 million 4.25% bonds due 2042(1)
$500 million 3.875% bonds due 2043
Bank and other loans
Fair value adjustment to borrowings
Borrowings due after one year
2022
£ million
2021
£ million
74
105
(19)
—
248
—
1,115
(1)
112
160
98
769
—
719
—
4
1,522
1,862
—
—
516
413
495
430
430
618
515
731
498
643
430
600
411
298
819
298
645
821
856
614
395
770
331
491
595
409
407
293
(274)
215
970
511
360
431
426
425
537
510
723
497
637
426
594
358
—
711
298
—
714
850
534
395
—
288
427
—
356
353
253
66
14,498
12,865
Total borrowings before derivative financial instruments
16,020
14,727
Fair value of cross currency interest rate swaps
Fair value of foreign currency swaps and forwards
Fair value of interest rate hedging instruments
Lease liabilities
Gross borrowings
Less: Cash and cash equivalents
Net borrowings
(367)
11
283
475
(154)
(15)
(63)
363
16,422
14,858
(2,285)
(2,749)
14,137
12,109
(1) SEC-registered debt issued on an unsecured basis by Diageo Investment Corporation, a
100% owned subsidiary of Diageo plc.
(i) The interest rates shown are those contracted on the underlying borrowings before
taking into account any interest rate hedges (see note 16).
(ii) Bonds are stated net of unamortised finance costs of £85 million (2021 – £78 million;
2020 – £86 million).
(iii) Bonds are reported above at amortised cost with a fair value adjustment shown
separately.
(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.
186
186
Diageo Annual Report 2022
Diageo Annual Report 2022
consider operating outside of this range in order to effect strategic
Borrowings due within one year
1,522
1,862
During the year, the following bonds were issued and repaid:
2022
£ million
2021
£ million
Gross borrowings before derivative financial instruments are expected
to mature as follows:
Within one year
Between one and three years
Between three and five years
Beyond five years
2022
£ million
1,522
2,817
2,625
9,056
2021
£ million
1,862
2,623
2,788
7,454
16,020
14,727
Issued
€ denominated
£ denominated
$ denominated
Repaid
€ denominated
$ denominated
2022
£ million
2021
£ million
2020
£ million
1,371
892
—
(769)
(752)
742
636
395
1,594
298
—
3,296
(696)
(551)
(216)
—
(820)
4,368
(a) Reconciliation of movement in net borrowings
2022
£ million
2021
£ million
12,109
13,246
665
231
825
(967)
(736)
(598)
197
At beginning of the year
Net decrease in cash and cash equivalents before
exchange
Net increase/(decrease) in bonds and other
borrowings(1)
Increase/(decrease) in net borrowings from cash flows
1,490
Exchange differences on net borrowings
Other non-cash items(2)
334
204
Net borrowings at end of the year
14,137
12,109
(1)
(2)
In the year ended 30 June 2022, net increase in bonds and other borrowings excludes
£4 million cash outflow in respect of derivatives designated in forward point hedges
(2021 – £2 million).
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 change
of borrowings.
(b) Analysis of net borrowings by currency
2022
2021
Cash and
cash
equivalents
£ million
Gross
borrowings(1)
£ million
Cash and
cash
equivalents
£ million
Gross
borrowings(1)
£ million
1,315
(3,260)
1,890
(4,001)
61
67
26
14
53
2
290
133
324
(2,943)
(9,214)
(74)
(264)
(254)
(214)
(75)
—
(124)
82
38
26
9
16
3
255
60
370
(2,841)
(7,279)
(109)
(102)
(293)
(241)
(20)
(1)
29
2,285
(16,422)
2,749
(14,858)
US dollar
Euro
Sterling
Indian rupee
Mexican peso
Kenyan shilling
Hungarian forint
Chinese yuan
Nigerian naira
Other(2)
Total
(1)
(2)
Includes foreign currency forwards and swaps and leases.
Includes £23 million (Turkish lira and Euro) cash and cash equivalents in cash-pooling
arrangements (2021 – £31 million (Turkish lira)).
(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
Bank overdrafts
Bank and other loans
Credit support obligations
to achieve capital efficiency, provide flexibility to invest through the
€900 million 0.25% bonds due 2021
economic cycle and give efficient access to 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
$300 million 8% bonds due 2022(1)
$1,000 million 2.875% bonds due 2022(1)
$1,350 million 2.625% bonds due 2023
Fair value adjustment to borrowings
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
2022, the adjusted net borrowings (£14,539 million) to adjusted EBITDA
$300 million 8% bonds due 2022(1)
$1,350 million 2.625% bonds due 2023
€600 million 0.125% bonds due 2023
$500 million 3.5% bonds due 2023
$600 million 2.125% bonds due 2024
ratio was 2.5 times. For this calculation net borrowings are adjusted by
€500 million 1.75% bonds due 2024
post employment benefit liabilities before tax (£402 million) whilst
adjusted EBITDA (£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.
17. Net borrowings
Accounting policies
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
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
foreign currency forwards and swaps used to manage borrowings) less
cash and cash equivalents.
€500 million 0.5% bonds due 2024
$750 million 1.375% bonds due 2025
€600 million 1% bonds due 2025
€850 million 2.375% bonds due 2026
£500 million 1.75% bonds due 2026
€750 million 1.875% bonds due 2027
€500 million 1.5% bonds due 2027
€700 million 0.125% bonds due 2028
£300 million 2.375% bonds due 2028
$1,000 million 2.375% bonds due 2029
£300 million 2.875% bonds due 2029
€750 million 1.15% bonds due 2029
$1,000 million 2% bonds due 2030
€1,000 million 2.5% bonds due 2032
$750 million 2.125% bonds due 2032
£400 million 1.25% bonds due 2033
€900 million 1.15% bonds due 2034
$400 million 7.45% bonds due 2035(1)
£600 million 2.75% bonds due 2038
$500 million 4.25% bonds due 2042(1)
$500 million 3.875% bonds due 2043
Bank and other loans
Fair value adjustment to borrowings
Borrowings due after one year
Borrowings are initially recognised at fair value net of transaction costs
and are subsequently reported at amortised cost. Certain bonds are
$500 million 3.875% bonds due 2028
maturity of three months or less, including money market deposits,
$600 million 5.875% bonds due 2036
74
105
(19)
—
248
—
1,115
(1)
—
—
516
413
495
430
430
618
515
731
498
643
430
600
411
298
819
298
645
821
856
614
395
770
331
491
595
409
407
293
(274)
(367)
11
283
475
112
160
98
769
—
719
—
4
215
970
511
360
431
426
425
537
510
723
497
637
426
594
358
—
711
298
—
714
850
534
395
—
288
427
—
356
353
253
66
(154)
(15)
(63)
363
Total borrowings before derivative financial instruments
16,020
14,727
14,498
12,865
Fair value of cross currency interest rate swaps
Fair value of foreign currency swaps and forwards
Fair value of interest rate hedging instruments
Lease liabilities
Gross borrowings
Less: Cash and cash equivalents
Net borrowings
16,422
14,858
(2,285)
(2,749)
14,137
12,109
(1) SEC-registered debt issued on an unsecured basis by Diageo Investment Corporation, a
100% owned subsidiary of Diageo plc.
(i) The interest rates shown are those contracted on the underlying borrowings before
taking into account any interest rate hedges (see note 16).
(ii) Bonds are stated net of unamortised finance costs of £85 million (2021 – £78 million;
(iii) Bonds are reported above at amortised cost with a fair value adjustment shown
2020 – £86 million).
separately.
(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.
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 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
At 30 June 2022
At 30 June 2021
At 30 June 2020
(b) Hedging and exchange reserve
At 30 June 2019
Other comprehensive income/(loss)
Transfers from other retained earnings
At 30 June 2020
Other comprehensive income/(loss)
Number
of shares
million
2,498
2,559
2,562
Nominal
value
£ million
723
741
742
Hedging
reserve
£ million
Exchange
reserve
£ million
(37)
125
5
93
20
(781)
(241)
—
(1,022)
(672)
Total
£ million
(818)
(116)
5
(929)
(652)
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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 £22
million (2021 – £22 million, 2020 – £30 million) credit to hedging reserve.
186
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187
187
transaction costs) (2021 – 3407 pence per share, and an aggregate cost
of £109 million, including £1 million of transaction costs; 2020 – 3243
pence per share, and an aggregate cost of £1,282 million, including £7
million of transaction costs) under the share buyback programme. The
shares purchased under the share buyback programmes were
cancelled.
A financial liability of £117 million was established at 30 June 2022,
representing the 3.3 million shares that were expected to be purchased
by 28 July 2022.
The monthly breakdown of all shares purchased and the average
price paid per share (excluding expenses) for the year ended 30 June
2022 were as follows:
Number
of shares
purchased under
share buyback
programme
Total number of
shares purchased
Average
price paid
pence
1,728,254
1,728,254
August 2021
2,396,223
2,396,223
Period
July 2021
September 2021
October 2021(1)
November 2021
December 2021
January 2022
February 2022
March 2022
April 2022
May 2022
June 2022
Total
3,175,936
3,175,936
1,565,980
1,565,980
1,375,946
4,423,031
5,822,743
5,865,710
1,375,946
4,423,031
5,822,743
5,865,710
8,480,736
8,480,736
7,260,564
7,260,564
12,627,704
12,627,704
6,771,405
6,771,405
Authorised
purchases
unutilised at
month end
227,758,747
225,362,524
222,186,588
232,045,302
230,669,356
226,246,325
220,423,582
214,557,872
206,077,136
198,816,572
186,188,868
179,417,463
3457
3538
3493
3550
3785
3960
3797
3714
3588
3935
3724
3584
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
£ million
2021
£ million
2020
£ 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)
Interim dividend for the year ended
30 June 2022
29.36 pence per share (2021 – 27.96
pence; 2020 – 27.41 pence)
1,040
992
1,006
680
654
640
1,720
1,646
1,646
The proposed final dividend of £1,067 million (46.82 pence per share)
for the year ended 30 June 2022 was approved by the Board of
Directors on 27 July 2022. 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.
(c) Own shares
Movements in own shares
At 30 June 2019
Share trust arrangements
Shares used to satisfy options
Shares purchased - share buyback programme
Shares cancelled
At 30 June 2020
Share trust arrangements
Shares used to satisfy options
Shares purchased - share buyback programme
Shares cancelled
At 30 June 2021
Share trust arrangements
Shares used to satisfy options
Shares purchased - share buyback programme
Shares cancelled
At 30 June 2022
Number
of shares
million
Purchase
consideration
£ million
232
2,026
(1)
(4)
39
(39)
227
(1)
(3)
3
(3)
223
(2)
(2)
61
(7)
(83)
1,282
(1,282)
1,936
(11)
(48)
109
(109)
1,877
(23)
(16)
2,284
(61)
(2,284)
219
1,838
Share trust arrangements
At 30 June 2022, the employee share trusts owned 2 million of ordinary
shares in Diageo plc (the company) at a cost of £25 million and market
value of £63 million (2021 – 2 million shares at a cost of £47 million,
market value £74 million; 2020 – 2 million shares at a cost of £51 million,
market value £57 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 30 September 2021 to
purchase a maximum of 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 29 December 2022 if earlier.
During the year ended 30 June 2022, Diageo sold call options on
own shares for a consideration of £13 million due to no longer being
required for employee share plan hedging.
Diageo’s current return of capital programme, initially approved by
the Board on 25 July 2019, seeks to return up to £4.5 billion to
shareholders and is expected to be completed by 30 June 2023. Under
the first two phases of the programme, which ended on 31 January
2020 and 11 February 2022 respectively, the company returned capital
to shareholders via share buyback, at a cost, excluding transaction
costs, of £2.25 billion. On 21 February 2022, the company announced
the third phase of the programme with a value of up to £1.7 billion
returned to shareholders, via share buybacks, 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 30 June 2023.
During the year ended 30 June 2022, the group purchased
61 million ordinary shares (2021 – 3 million; 2020 – 39 million),
representing approximately 2.4% of the issued ordinary share capital
(2021 – 0.1%; 2020 – 1.5%) at an average price of 3709 pence per
share, and an aggregate cost of £2,284 million (including £16 million of
188
188
Diageo Annual Report 2022
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Number
of shares
million
Purchase
consideration
£ million
232
2,026
cancelled.
transaction costs) (2021 – 3407 pence per share, and an aggregate cost
of £109 million, including £1 million of transaction costs; 2020 – 3243
pence per share, and an aggregate cost of £1,282 million, including £7
million of transaction costs) under the share buyback programme. The
shares purchased under the share buyback programmes were
A financial liability of £117 million was established at 30 June 2022,
representing the 3.3 million shares that were expected to be purchased
by 28 July 2022.
2022 were as follows:
The monthly breakdown of all shares purchased and the average
price paid per share (excluding expenses) for the year ended 30 June
Number
of shares
purchased under
share buyback
programme
shares purchased
Total number of
1,728,254
1,728,254
Average
price paid
August 2021
2,396,223
2,396,223
September 2021
3,175,936
3,175,936
Period
July 2021
October 2021(1)
November 2021
December 2021
January 2022
February 2022
March 2022
April 2022
May 2022
June 2022
Total
1,565,980
1,565,980
1,375,946
4,423,031
5,822,743
5,865,710
1,375,946
4,423,031
5,822,743
5,865,710
8,480,736
8,480,736
7,260,564
7,260,564
12,627,704
12,627,704
6,771,405
6,771,405
Authorised
purchases
unutilised at
month end
227,758,747
225,362,524
222,186,588
232,045,302
230,669,356
226,246,325
220,423,582
214,557,872
206,077,136
198,816,572
186,188,868
179,417,463
pence
3457
3538
3493
3550
3785
3960
3797
3714
3588
3935
3724
3584
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
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)
Interim dividend for the year ended
30 June 2022
29.36 pence per share (2021 – 27.96
pence; 2020 – 27.41 pence)
1,040
992
1,006
680
654
640
1,720
1,646
1,646
(c) Own shares
Movements in own shares
At 30 June 2019
Share trust arrangements
Shares used to satisfy options
Shares cancelled
At 30 June 2020
Share trust arrangements
Shares used to satisfy options
Shares cancelled
At 30 June 2021
Share trust arrangements
Shares used to satisfy options
Shares purchased - share buyback programme
Shares purchased - share buyback programme
(1)
(4)
39
(39)
227
(1)
(3)
3
(3)
223
(2)
(2)
61
(7)
(83)
1,282
(1,282)
1,936
(11)
(48)
109
(109)
1,877
(23)
(16)
2,284
(61)
(2,284)
219
1,838
Shares purchased - share buyback programme
Shares cancelled
At 30 June 2022
Share trust arrangements
At 30 June 2022, the employee share trusts owned 2 million of ordinary
shares in Diageo plc (the company) at a cost of £25 million and market
value of £63 million (2021 – 2 million shares at a cost of £47 million,
market value £74 million; 2020 – 2 million shares at a cost of £51 million,
market value £57 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 30 September 2021 to
purchase a maximum of 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 29 December 2022 if earlier.
During the year ended 30 June 2022, Diageo sold call options on
own shares for a consideration of £13 million due to no longer being
required for employee share plan hedging.
Diageo’s current return of capital programme, initially approved by
the Board on 25 July 2019, seeks to return up to £4.5 billion to
shareholders and is expected to be completed by 30 June 2023. Under
the first two phases of the programme, which ended on 31 January
2020 and 11 February 2022 respectively, the company returned capital
to shareholders via share buyback, at a cost, excluding transaction
costs, of £2.25 billion. On 21 February 2022, the company announced
the third phase of the programme with a value of up to £1.7 billion
is expected to be completed by 30 June 2023.
During the year ended 30 June 2022, the group purchased
61 million ordinary shares (2021 – 3 million; 2020 – 39 million),
representing approximately 2.4% of the issued ordinary share capital
(2021 – 0.1%; 2020 – 1.5%) at an average price of 3709 pence per
share, and an aggregate cost of £2,284 million (including £16 million of
returned to shareholders, via share buybacks, to be completed no later
the dividend is subject to approval by shareholders at the Annual
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
General Meeting, this dividend has not been included as a liability in
these consolidated financial statements. There are no corporate tax
The proposed final dividend of £1,067 million (46.82 pence per share)
for the year ended 30 June 2022 was approved by the Board of
Directors on 27 July 2022. As this was after the balance sheet date and
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.
(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:
Income statement
Sales
Net sales
(Loss)/profit for the year
Other comprehensive income/(loss)(1)
Total comprehensive income/(loss)
Attributable to non-controlling interests
Balance sheet
Non-current assets(2)
Current assets
Non-current liabilities
Current liabilities
Net assets
Attributable to non-controlling interests
Cash flow
Net cash inflow from operating activities
Net cash outflow from investing activities
Net cash outflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Exchange differences
Dividends payable to non-controlling interests
USL
£ million
2022
Others
£ million
3,194
1,013
(127)
134
7
3
1,668
727
(275)
(441)
1,679
717
149
(74)
(72)
3
—
—
2,603
2,042
354
199
553
256
3,349
1,275
(1,224)
(1,205)
2,195
999
541
(215)
(250)
76
52
(72)
Total
£ million
5,797
3,055
227
333
560
259
5,017
2,002
(1,499)
(1,646)
3,874
1,716
690
(289)
(322)
79
52
(72)
2021
Total
£ million
5,140
2,553
298
(434)
(136)
(35)
4,669
1,492
(1,356)
(1,335)
3,470
1,534
661
(137)
(371)
153
(19)
(72)
2020
Total
£ million
4,688
2,314
85
(96)
(11)
8
5,170
1,280
(1,459)
(1,188)
3,803
1,668
233
(152)
(209)
(128)
(3)
(117)
2022
£ million
2021
£ million
2020
£ million
(1) Other comprehensive income is principally in respect of exchange on translating the subsidiaries to sterling.
(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 2022 was
£1,488 million (2021 – £1,295 million; 2020 – £1,464 million).
(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 2022 is as follows:
Executive share award plans
Executive share option plans
Savings plans
2022
£ million
2021
£ million
2020
£ million
51
4
4
59
41
4
4
49
(3)
2
3
2
Executive share awards have been made primarily 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 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 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 under DLTIP for a further two-year post-vesting 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 ADRs
(one 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
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 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% for Executive Directors and 25% for other
participants for achieving minimum performance targets, up to 100%
for achieving the maximum target level. Retesting of the performance
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.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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189
189
Transactions on schemes
Transactions on the executive share award plans for the three years
ended 30 June 2022 were as follows:
Balance outstanding at 1 July
Granted
Awarded
Forfeited
Balance outstanding at 30 June
2022
Number of
awards
million
2021
Number of
awards
million
2020
Number of
awards
million
5.3
2.1
(1.1)
(1.1)
5.2
5.6
2.1
(1.2)
(1.2)
5.3
7.0
1.8
(2.5)
(0.7)
5.6
The exercise price of share options outstanding at 30 June 2022 was in
the range of 1704 pence-4024 pence (2021 – 1232 pence-3483 pence;
2020 – 1080 pence-3483 pence.)
At 30 June 2022, 2.2 million share options were exercisable at a
weighted average exercise price of 2394 pence. Weighted average
remaining contractual life of share options was five years at 30 June
2022.
Savings plans are provided in the form of a savings-related share option
plan. For UK employees, awards were made under the Diageo 2010
Sharesave 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 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 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.
For the three years ended 30 June 2022, the calculation of the fair value
of each share award used the Monte Carlo and Black Scholes pricing
model and the following assumptions:
Risk free interest rate
2022
0.4%
2021
(0.1%)
2020
0.4%
Expected life of the awards
40 months
36 months
37 months
Dividend yield
Weighted average share price
Weighted average fair value of
awards granted in the year
Number of awards granted in
the year
Fair value of all awards granted
in the year
2.1%
3545 p
2.7%
2557 p
1.9%
3501 p
2729 p
2107 p
899 p
2.1 million
2.1 million
1.7 million
£57 million
£45 million
£16 million
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Savings plans are provided in the form of a savings-related share option
Transactions on schemes
Other financial 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.
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. 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 2022, the group has no material unprovided guarantees
or indemnities in respect of liabilities of third parties.
(b) Acquisition of USL shares from UBHL and 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 shares representing 14.98% in
USL, including shares representing 6.98% from UBHL. The SPA was
signed on 9 November 2012 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 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 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 certain winding-up petitions that were pending
against UBHL on the date of the SPA. 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, 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 6.98%
stake in USL from UBHL at that time.
Following appeal and counter-appeal in respect of the Leave Order,
this matter is now before the Supreme Court of India which has issued
an order that the status quo be maintained with regard to the UBHL
Share Sale pending a hearing on the matter before it. Following a
number of adjournments, the next date for a substantive hearing is yet
to be fixed.
In separate proceedings, the High Court passed a winding-up order
against UBHL on 7 February 2017, and appeals filed by UBHL against
that order have since been dismissed, initially by a division bench of the
High Court and subsequently by the Supreme Court of 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. 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 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 time frame within which they
would be concluded.
(c) Continuing matters relating to Dr Vijay Mallya and 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.
Diageo’s agreement with Dr Mallya (the February 2016 Agreement)
provided for a payment of $75 million (£62 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
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 agreement. The February 2016 Agreement
also provided for the release of Dr Mallya’s personal obligations to
indemnify Diageo Holdings Netherlands B.V. (DHN) in respect of its
earlier liability ($141 million (£117 million)) under a backstop guarantee of
certain borrowings of Watson Limited (Watson) (a company affiliated
with Dr Mallya).
On account of various breaches and other provisions of agreements
between Dr Mallya and persons connected with him and Diageo and/
or USL, Diageo did not make the five instalment payments due during
the five-year period between 2017 and 2021. In addition, Diageo has
also demanded that Dr Mallya repay the $40 million (£33 million) paid
by Diageo in February 2016 and sought compensation for various losses
incurred by the relevant members of the Diageo 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 these matters. At the same time DHN also commenced
claims in the English High Court against Dr Mallya, his son Sidhartha
Mallya, Watson 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 (£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. Dr Mallya, Sidhartha Mallya and the
relevant affiliated companies filed a defence to these claims, and Dr
Mallya also filed a counterclaim for payment of the two instalment
payments that had by that time been withheld as described above.
Diageo continues to prosecute its claims and to defend the
counterclaim. As part of 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.The application was
successful resulting in 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 relevant orders,
not paid by the relevant deadlines and Watson and CASL’s remaining
defences in the proceedings were struck out. Diageo and DHN have
accordingly sought asset disclosure and are considering further
Diageo Annual Report 2022
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191
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Transactions on the executive share award plans for the three years
ended 30 June 2022 were as follows:
Balance outstanding at 1 July
Granted
Awarded
Forfeited
Balance outstanding at 30 June
Number of
Number of
Number of
2021
2020
awards
million
awards
million
2022
awards
million
5.3
2.1
(1.1)
(1.1)
5.2
5.6
2.1
(1.2)
(1.2)
5.3
7.0
1.8
(2.5)
(0.7)
5.6
The exercise price of share options outstanding at 30 June 2022 was in
the range of 1704 pence-4024 pence (2021 – 1232 pence-3483 pence;
2020 – 1080 pence-3483 pence.)
At 30 June 2022, 2.2 million share options were exercisable at a
weighted average exercise price of 2394 pence. Weighted average
remaining contractual life of share options was five years at 30 June
2022.
plan. For UK employees, awards were made under the Diageo 2010
Sharesave 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 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 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.
For the three years ended 30 June 2022, the calculation of the fair value
of each share award used the Monte Carlo and Black Scholes pricing
model and the following assumptions:
Expected life of the awards
40 months
36 months
37 months
Risk free interest rate
Dividend yield
Weighted average share price
Weighted average fair value of
awards granted in the year
Number of awards granted in
the year
in the year
Fair value of all awards granted
2022
0.4%
2.1%
3545 p
2021
(0.1%)
2020
0.4%
2.7%
2557 p
1.9%
3501 p
2729 p
2107 p
899 p
2.1 million
2.1 million
1.7 million
£57 million
£45 million
£16 million
190
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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 by Diageo and the relevant members
of its group.
Upon completion of an initial inquiry in April 2015 into past improper
transactions which identified references to certain additional parties and
matters, USL carried out an additional inquiry into these transactions
(Additional Inquiry) which was completed in July 2016. The Additional
Inquiry, prima facie, identified transactions indicating actual and
potential diversion of funds from USL and its Indian and overseas
subsidiaries to, in most cases, entities that appeared to be affiliated or
associated with Dr Mallya. All amounts identified in the Additional
Inquiry have been provided for or expensed in the financial statements
of USL or its subsidiaries 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 matters in relation to USL
In respect of the Watson backstop guarantee arrangements, the
Securities and Exchange Board of India (SEBI) issued a 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
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 that SEBI's decision was not
consistent with applicable 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 is not consistent with applicable
law and has filed another appeal before the SAT against the order.
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
192
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of loss, if any, to which any such action might give rise to if determined
against Diageo or USL.
(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 (£66 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 (£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 (£5 million) remains
recoverable from IDBI.
(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.
The group operates in a large number of markets with complex tax
and legislative regimes that are open to subjective interpretation. In 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 degree of judgement, contingent liabilities are
disclosed on the basis of the current known possible exposure from tax
assessment values. While not all of these cases are individually
significant, the current aggregate known possible exposure from tax
assessment values is up to approximately £545 million for Brazil and up
to approximately £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 fiscal environment in Brazil
and in India, the possibility of further tax assessments related to the
same matters cannot be ruled out and the judicial processes may take
enforcement steps against Watson and CASL, both in the United
of loss, if any, to which any such action might give rise to if determined
Kingdom and in other jurisdictions where they are present or hold
against Diageo or USL.
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 by Diageo and the relevant members
of its group.
Upon completion of an initial inquiry in April 2015 into past improper
transactions which identified references to certain additional parties and
matters, USL carried out an additional inquiry into these transactions
(Additional Inquiry) which was completed in July 2016. The Additional
Inquiry, prima facie, identified transactions indicating actual and
potential diversion of funds from USL and its Indian and overseas
subsidiaries to, in most cases, entities that appeared to be affiliated or
associated with Dr Mallya. All amounts identified in the Additional
Inquiry have been provided for or expensed in the financial statements
of USL or its subsidiaries 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 matters in relation to USL
In respect of the Watson backstop guarantee arrangements, the
Securities and Exchange Board of India (SEBI) issued a 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
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 that SEBI's decision was not
consistent with applicable 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 is not consistent with applicable
law and has filed another appeal before the SAT against the order.
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
192
192
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(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 (£66 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 (£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 (£5 million) remains
recoverable from IDBI.
(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.
The group operates in a large number of markets with complex tax
and legislative regimes that are open to subjective interpretation. In 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 degree of judgement, contingent liabilities are
disclosed on the basis of the current known possible exposure from tax
assessment values. While not all of these cases are individually
significant, the current aggregate known possible exposure from tax
assessment values is up to approximately £545 million for Brazil and up
to approximately £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 fiscal environment in Brazil
and in India, the possibility of further tax assessments related to the
same matters cannot be ruled out and the judicial processes may take
20. Commitments
(a) Capital commitments
Commitments for expenditure on intangibles and property, plant and
equipment not provided for in these consolidated financial statements
are estimated at £399 million (2021 – £263 million; 2020 – £312 million).
(b) Other commitments
The minimum lease rentals payable in the year ended 30 June 2022 for
short-term leases and leases of low-value assets are estimated at
£13 million (2021 – £11 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 2022, are estimated at £11 million (2021 – £132
million; 2020 - £133 million).
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 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:
2022
2021
2020
£ million
£ million
£ million
Income statement items
Sales
Purchases
Balance sheet items
Group payables
Group receivables
Loans payable
Loans receivable
Cash flow items
11
31
2
2
—
8
23
5
1
9
175
108
Loans and equity contributions, net
66
38
Other disclosures in respect of associates and joint ventures are
included in note 6.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
9
29
2
1
6
82
47
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 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 in the group's balance sheet. The
total amount of payments under protest recognised as a receivable as
at 30 June 2022 is £120 million (corporate tax payments of £108 million
and indirect tax payments of £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 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. The US Treasury and CBP filed an appeal with the US Court of
Appeals for the 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 seek a review at the US Supreme Court level has
passed and, as a result, this matter has been resolved.
(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.
(h) Other
The group has extensive international operations and routinely makes
judgements on a range of legal, customs and tax matters which are
incidental to the group's operations. Some of these judgements are or
may become the subject of challenges and involve proceedings, the
outcome of which cannot 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.
Diageo Annual Report 2022
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193
(c) Key management personnel
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’.
(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 £0.1 million (2021 – £0.1 million;
2020 – £0.1 million).
2022
2021
2020
£ million
£ million
£ million
(e) Directors’ remuneration
Salaries and short-term employee benefits
Annual incentive plan
Non-Executive Directors’ fees
Share-based payments(1)
Post employment benefits
Termination benefits
10
13
1
19
2
—
45
9
13
1
12
1
2
38
10
—
1
(11)
2
2
4
(1)
Time-apportioned fair value of unvested options and share awards.
Non-Executive Directors do not receive share-based payments or post
employment benefits.
There were no transactions with these related parties during the
year ended 30 June 2022 on terms other than those that prevail in
arm’s length transactions.
Salaries and short-term employee benefits
Annual incentive plan
Non-Executive Directors' fees
Share option exercises(1)
Shares vesting(1)
Post employment benefits
2022
2021
2020
£ million
£ million
£ million
3
4
1
4
3
—
15
2
4
1
—
1
—
8
2
—
1
—
11
1
15
(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.
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(1)
Business description
Subsidiaries
Diageo Ireland
Diageo Great Britain Limited
Diageo Scotland Limited
Diageo Brands B.V.
Diageo North America, Inc.
United Spirits Limited(2)
Diageo Capital plc(3)
Diageo Capital B.V.(3)
Diageo Finance plc(3)
Ireland
England
Scotland
Netherlands
United States
India
Scotland
Worldwide
Great Britain
Worldwide
Worldwide
Worldwide
India
United Kingdom
Netherlands
Netherlands
England
United Kingdom
Diageo Investment Corporation
United States
United States
Mey İçki Sanayi ve Ticaret A.Ş.
Turkey
Associates
Moët Hennessy, SAS(4)
France
Turkey
France
100%
100%
100%
100%
100%
Production, marketing and distribution of premium drinks
Marketing and distribution of premium drinks
Production, marketing and distribution of premium drinks
Marketing and distribution of premium drinks
Production, importing, marketing and distribution of premium drinks
55.94%
Production, importing, marketing and distribution of premium drinks
100%
100%
100%
100%
100%
Financing company for the group
Financing company for the group
Financing company for the group
Financing company for the US group
Production, marketing and distribution of premium drinks
34%
Production, marketing and distribution of premium drinks
(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.
(2) Percentage ownership excludes 2.38% owned by the USL Benefit Trust.
(3) Directly owned by Diageo plc.
(4) French limited liability company.
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.
194
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(c) Key management personnel
(d) Pension plans
The key management of the group comprises the Executive and Non-
The Diageo pension plans are recharged with the cost of administration
Executive Directors, the members of the Executive Committee and the
services provided by the group to the pension plans and with
Company Secretary. They are listed under ‘Board of Directors and
professional fees paid by the group on behalf of the pension plans. The
Company Secretary’ and ‘Executive Committee’.
total amount recharged for the year was £0.1 million (2021 – £0.1 million;
Salaries and short-term employee benefits
Annual incentive plan
Non-Executive Directors’ fees
Share-based payments(1)
Post employment benefits
Termination benefits
2022
2021
2020
£ million
£ million
£ million
10
13
1
19
2
—
45
9
13
1
12
1
2
38
10
—
1
(11)
2
2
4
2020 – £0.1 million).
(e) Directors’ remuneration
Salaries and short-term employee benefits
Annual incentive plan
Non-Executive Directors' fees
Share option exercises(1)
Shares vesting(1)
Post employment benefits
2022
2021
2020
£ million
£ million
£ million
3
4
1
4
3
—
15
2
4
1
—
1
—
8
2
—
1
—
11
1
15
(1)
Time-apportioned fair value of unvested options and share awards.
Non-Executive Directors do not receive share-based payments or post
employment benefits.
(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
There were no transactions with these related parties during the
release of the awards.
year ended 30 June 2022 on terms other than those that prevail in
arm’s length transactions.
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
Business description
Percentage of
equity owned(1)
Production, marketing and distribution of premium drinks
Marketing and distribution of premium drinks
Production, marketing and distribution of premium drinks
Marketing and distribution of premium drinks
Subsidiaries
Diageo Ireland
Diageo Great Britain Limited
Diageo Scotland Limited
Diageo Brands B.V.
Netherlands
Diageo North America, Inc.
United States
Ireland
England
Scotland
India
Scotland
United Spirits Limited(2)
Diageo Capital plc(3)
Diageo Capital B.V.(3)
Diageo Finance plc(3)
Associates
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Worldwide
Great Britain
Worldwide
Worldwide
Worldwide
India
United Kingdom
Turkey
France
(2) Percentage ownership excludes 2.38% owned by the USL Benefit Trust.
(3) Directly owned by Diageo plc.
(4) French limited liability company.
23. Post balance sheet events
Netherlands
Netherlands
England
United Kingdom
Financing company for the group
Financing company for the group
Financing company for the group
Diageo Investment Corporation
United States
United States
Financing company for the US group
Mey İçki Sanayi ve Ticaret A.Ş.
Turkey
Production, marketing and distribution of premium drinks
Moët Hennessy, SAS(4)
France
34%
Production, marketing and distribution of premium drinks
(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.
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.
Company balance sheet of Diageo plc
Non-current assets
Investment in subsidiary undertakings
Other financial assets
Post employment benefit assets
Current assets
Amounts owed by group undertakings
Trade and other receivables
Other financial assets
Cash and cash equivalents
Total assets
Current liabilities
Amounts owed to group undertakings
Borrowings
Other financial liabilities
Trade and other payables
Provisions
Non-current liabilities
Amounts owed to group undertakings
Other financial liabilities
Provisions
Deferred tax liabilities
Post employment benefit liabilities
Production, importing, marketing and distribution of premium drinks
55.94%
Production, importing, marketing and distribution of premium drinks
Total liabilities
Net assets
Equity
Share capital (2022 – 2,498 million shares (2021 - 2,559 million shares) of 28 101/108 pence
each)
Share premium
Merger reserve
Capital redemption reserve
Retained earnings:
At beginning of year
Profit for the year
Other changes in retained earnings
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.
Total equity
30 June 2022
30 June 2021
Notes
£ million
£ million
£ million
£ million
3
4
6
61,561
536
1,210
4
2,879
4
4
4
7
4
4
7
5
6
9
9
7
96
16
(48)
—
(164)
(37)
(11)
(9,385)
(536)
(158)
(243)
(66)
723
1,351
9,161
3,220
43,780
1,026
(3,604)
61,558
389
854
63,307
62,801
2,998
66,305
5,384
68,185
5,335
7
3
39
(220)
(33)
(94)
(34)
(14)
(260)
(395)
(10,388)
(10,648)
55,657
(8,762)
(389)
(165)
(144)
(95)
741
1,351
9,161
3,202
(9,555)
(9,950)
58,235
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
14,455
14,455
45,362
294
(1,876)
41,202
55,657
43,780
58,235
The accompanying notes are an integral part of these parent company financial statements.
These financial statements have been approved by a duly appointed and authorised committee of the Board of Directors on 27 July 2022 and
were signed on its behalf by Ivan Menezes and Lavanya Chandrashekar, Directors.
Company registration number No. 23307
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Diageo Annual Report 2022
Diageo Annual Report 2022
195
195
Statement of changes in equity for Diageo plc
Share capital
Share premium Merger reserve
Capital
redemption
reserve
Own shares
Other reserve
Total
Total equity
Retained earnings/(deficit)
At 30 June 2020
Profit for the year
Other comprehensive loss
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Tax on share-based incentive plans
Share buyback programme
Dividends paid
At 30 June 2021
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Tax on share-based incentive plans
Unclaimed dividends
Share buyback programme
Dividends paid
At 30 June 2022
£ million
£ million
£ million
£ million
£ million
£ million
£ million
742
1,351
9,161
3,201
(1,936)
47,298
45,362
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
59
—
—
—
—
294
(131)
163
(10)
49
3
294
(131)
163
49
49
3
£ million
59,817
294
(131)
163
49
49
3
(200)
(200)
(200)
(1,646)
(1,646)
(1,646)
741
1,351
9,161
3,202
(1,877)
45,657
43,780
58,235
—
—
—
—
—
—
—
(18)
—
723
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
18
—
—
—
—
39
—
—
—
—
—
1,026
275
1,301
50
59
1
2
1,026
275
1,301
89
59
1
2
1,026
275
1,301
89
59
1
2
(2,310)
(1,720)
(2,310)
(1,720)
(2,310)
(1,720)
1,351
9,161
3,220
(1,838)
43,040
41,202
55,657
The accompanying notes are an integral part of these parent company financial statements.
196
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Diageo Annual Report 2022
Diageo Annual Report 2022
Statement of changes in equity for Diageo plc
Notes to the company financial statements of Diageo plc
At 30 June 2020
Profit for the year
Other comprehensive loss
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Tax on share-based incentive plans
Share buyback programme
Dividends paid
At 30 June 2021
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Employee share schemes
Share-based incentive plans
Tax on share-based incentive plans
Unclaimed dividends
Share buyback programme
Dividends paid
At 30 June 2022
Retained earnings/(deficit)
Capital
redemption
Share capital
Share premium Merger reserve
reserve
Own shares
Other reserve
Total
Total equity
£ million
£ million
£ million
£ million
£ million
£ million
£ million
742
1,351
9,161
3,201
(1,936)
47,298
45,362
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
(18)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
18
—
(200)
(200)
(200)
(1,646)
(1,646)
(1,646)
294
(131)
163
(10)
49
3
294
(131)
163
49
49
3
1,026
275
1,301
50
59
1
2
1,026
275
1,301
89
59
1
2
£ million
59,817
294
(131)
163
49
49
3
1,026
275
1,301
89
59
1
2
(2,310)
(1,720)
(2,310)
(1,720)
(2,310)
(1,720)
59
—
—
—
—
—
—
—
39
—
—
—
—
—
—
—
—
741
1,351
9,161
3,202
(1,877)
45,657
43,780
58,235
The accompanying notes are an integral part of these parent company financial statements.
723
1,351
9,161
3,220
(1,838)
43,040
41,202
55,657
1. Accounting policies of the company
Basis of preparation
The financial statements of Diageo plc (the company) are prepared in
accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101).
In preparing these financial statements, the company applies the
recognition, measurement, and disclosure requirements of International
Financial Reporting Standards as adopted by the UK (IFRS), but makes
amendments where necessary in order to comply with the Companies
Act 2006 and has excluded certain information as permitted by FRS 101.
The financial statements are prepared on a going concern basis
under the historical cost convention, except for certain financial
instruments and post employment benefits which are measured and
stated at their fair value.
By virtue of section 408 of the Companies Act 2006, the company is
exempt from presenting an income statement and disclosing employee
numbers and staff costs. The company has taken advantage of the
exemption under FRS 101 from preparing a cash flow statement and
related notes, disclosures in respect of transactions and the capital
management of wholly owned subsidiaries, the effects of new but not
yet effective IFRSs and disclosures in respect of the compensation of key
management personnel. As the consolidated financial statements of
Diageo plc include equivalent disclosures, the company has also utilised
exemptions available under FRS 101 from disclosing IFRS 2 Share-based
Payments in respect of group settled share-based payments, disclosures
required by IFRS 7 Financial Instruments Disclosures and by IFRS 13 Fair
Value Measurement.
Investment in subsidiaries
Investments in subsidiaries are stated at historical cost less impairment
provisions for any permanent decrease in value. The carrying amounts
of the company’s investments are reviewed at each reporting date to
determine whether there is an indication of impairment. If such an
indication exists, then the asset’s recoverable amount is estimated.
Losses are recognised in the statement of comprehensive income and
reflected in an allowance against the carrying value. Where an event
results in the asset’s recoverable amount being higher than the
previously impaired carrying value, the original impairment may be
reversed through the statement of comprehensive income in subsequent
periods.
Dividends
Dividends payable are included in the financial statements in the
financial year in which they are approved. Dividends received are
included in the financial statements in the year in which they are
receivable.
Share-based payments – employee benefits
The company’s accounting policy for share-based payments is the same
as set out in note 18 to the consolidated financial statements. Where the
company grants options over its own shares to the employees of its
subsidiaries, it generally recharges the cost to the relevant group
company. Where the amount is not recharged, the value of the options
is recognised as a capital contribution to the subsidiaries and increases
the cost of investment.
Pensions and other post employment benefits
The company’s accounting policy for post employment benefits is the
same as set out in note 14 to the consolidated financial statements. The
company acts as sponsor of all UK post employment plans for the
benefit of employees and former employees throughout the group.
There is no contractual agreement or stated policy for charging the net
defined benefit costs for the plan measured in accordance with FRS 101,
to other group companies whose employees participate in these group
wide plans. However, recharges to other group companies are made
on a funding basis and are credited against post employment service
costs to the extent they are in respect of current service. The fair value of
the plans’ assets less the present value of the plans’ liabilities are
disclosed as a net asset or net liability on the company’s balance sheet
as it is deemed to be the legal sponsor of these plans. The net income
charge/credit reflects the change in the defined benefit obligation,
resulting from service in the current year, benefit changes, curtailments
and settlements. Past service costs are recognised in income. The net
interest cost is calculated by applying the discount rate to the net
balance of the defined benefit obligation and the fair value of the plan
assets and is included in the income statement. Any differences due to
changes in assumptions or experience are recognised in other
comprehensive income.
Provisions
The company’s accounting policy for provisions is the same as set out in
note 15 to the consolidated financial statements.
Taxation
The company’s accounting policy for taxation is the same as set out in
note 7 to the consolidated financial statements.
Financial assets and liabilities
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 company assesses whether there is evidence of
impairment at each balance sheet date. The company 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 income statement and financial assets at fair value
through other comprehensive income. Where financial assets or
liabilities are eligible to be carried at either amortised cost or fair value,
the company does not apply the fair value option.
Amounts owed by group undertakings are initially measured at fair
value and are subsequently reported at amortised cost. Non-interest
bearing trade receivables are stated at their nominal value as they are
due on demand. 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-month expected credit losses or
lifetime expected credit losses depending on changes in the credit
quality of the counterparty. Expected credit loss is immaterial for
amounts owed by group undertakings.
Amounts owed to group undertakings are initially measured at fair
value and are subsequently reported at amortised cost. Non-interest
bearing trade payables are stated at their nominal value as they are
due on demand. For a number of loans owed to other group
companies, the company has a contractual right to defer payment by
one year and one day and therefore these amounts are disclosed as
non-current liabilities.
F
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I
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A
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E
M
E
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4. Financial assets and liabilities
Other financial assets and liabilities are recorded at fair value through
income statement and comprise the fair value of interest rate swaps
and cross currency interest rate swaps with subsidiary undertakings,
where the company acts as an intermediary between group
companies, therefore it is not expected that there will be any net impact
on future cash flows.
Amounts owed by and to group undertakings, trade and other
receivables and trade and other payables are measured at amortised
cost.
Amounts owed by and to group undertakings are interest bearing
and unsecured. For a majority of the loans owed to other group
companies, the company has a contractual right to defer payment by
one year and one day and they are therefore classified as non-current
liabilities. Other amounts owed by and to group undertakings are
repayable on demand.
5. Deferred tax assets and liabilities
At 30 June 2020
Changes in tax rates
Recognised in income statement
Recognised in other comprehensive
income and equity
At 30 June 2021
Changes in tax rates
Recognised in other comprehensive
income and equity
At 30 June 2022
Post
employment
plans
Other
temporary
differences
Total
£ million
£ million
£ million
(164)
(46)
(1)
21
(190)
(23)
(4)
(69)
(286)
37
11
(2)
—
46
(1)
(2)
—
43
(127)
(35)
(3)
21
(144)
(24)
(6)
(69)
(243)
Deferred tax on other temporary differences includes assets in respect of
the UK Thalidomide Trust liability of £42 million (2021 – £45 million) and
share-based payment liabilities of £1 million (2021 – £1 million).
Additional estimates have been applied by management regarding
Recognised in income statement
Financial guarantee contract liabilities
Financial guarantee contract liabilities are measured initially at their fair
values. These liabilities are subsequently measured at the higher of the
amount determined under IAS 37 and the amount initially recognised
(fair value) less where appropriate, cumulative amortisation of the initial
amount recognised.
Judgements in applying accounting policies and key sources of
estimation uncertainty
The preparation of financial statements requires the directors 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.
The critical accounting policies, which the directors consider are of
greater complexity and/or particularly subject to the exercise of
estimates and judgements, are the same as those disclosed in note 1 to
the consolidated financial statements in respect of taxation, post
employment benefits, contingent liabilities and legal proceedings.
A critical accounting estimate, specific to the company is the
assessment of the recoverable amount of the investments in
subsidiaries. Impairment reviews are carried out to ensure that the value
of the investments in subsidiaries are not carried at above their
recoverable amounts. 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 expected growth rates.
Such estimates and judgements are subject to change as a result of
changing economic conditions and actual cash flows may differ from
forecasts.
the potential financial impacts of increasing inflationary pressures.
Details are set out in note 9 to the consolidated financial statements.
2. Income statement
Note 3 to the consolidated financial statements provides details of the
remuneration of the company’s auditor for the group.
Information on Directors’ emoluments, share and other interests,
transactions and pension entitlements is included in the Directors’
remuneration report in this Annual Report.
3. Investment in subsidiary undertakings
Cost
At 30 June 2021
Additions
At 30 June 2022
Provision
At 30 June 2021
Increase in the year
At 30 June 2022
Carrying amount
At 30 June 2022
At 30 June 2021
£ million
72,698
3
72,701
(11,140)
—
(11,140)
61,561
61,558
Investments in subsidiary undertakings are stated at historical cost of
£72,701 million (2021 – £72,698 million) less impairment provisions of
£11,140 million (2021 – £11,140 million).
Investments in subsidiary undertakings include £137 million (2021 –
£134 million) of costs in respect of share-based payments, granted to
subsidiary undertakings which were not recharged to the subsidiaries.
The additions comprise £3 million not recharged and capitalised as a
cost of investment during the year ended 30 June 2022.
A list of group companies as at 30 June 2022 is provided in note 10.
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Financial guarantee contract liabilities
4. Financial assets and liabilities
Financial guarantee contract liabilities are measured initially at their fair
values. These liabilities are subsequently measured at the higher of the
amount determined under IAS 37 and the amount initially recognised
(fair value) less where appropriate, cumulative amortisation of the initial
amount recognised.
estimation uncertainty
Judgements in applying accounting policies and key sources of
on future cash flows.
The preparation of financial statements requires the directors 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
cost.
Other financial assets and liabilities are recorded at fair value through
income statement and comprise the fair value of interest rate swaps
and cross currency interest rate swaps with subsidiary undertakings,
where the company acts as an intermediary between group
companies, therefore it is not expected that there will be any net impact
Amounts owed by and to group undertakings, trade and other
receivables and trade and other payables are measured at amortised
Amounts owed by and to group undertakings are interest bearing
and unsecured. For a majority of the loans owed to other group
companies, the company has a contractual right to defer payment by
one year and one day and they are therefore classified as non-current
liabilities. Other amounts owed by and to group undertakings are
repayable on demand.
5. Deferred tax assets and liabilities
Additional estimates have been applied by management regarding
Recognised in income statement
At 30 June 2020
Changes in tax rates
Recognised in income statement
Recognised in other comprehensive
income and equity
At 30 June 2021
Changes in tax rates
Recognised in other comprehensive
income and equity
At 30 June 2022
(164)
(46)
(1)
21
(190)
(23)
(4)
(69)
(286)
37
11
(2)
—
46
(1)
(2)
—
43
Total
(127)
(35)
(3)
21
(144)
(24)
(6)
(69)
(243)
Deferred tax on other temporary differences includes assets in respect of
the UK Thalidomide Trust liability of £42 million (2021 – £45 million) and
share-based payment liabilities of £1 million (2021 – £1 million).
estimates.
The critical accounting policies, which the directors consider are of
greater complexity and/or particularly subject to the exercise of
estimates and judgements, are the same as those disclosed in note 1 to
the consolidated financial statements in respect of taxation, post
employment benefits, contingent liabilities and legal proceedings.
A critical accounting estimate, specific to the company is the
assessment of the recoverable amount of the investments in
subsidiaries. Impairment reviews are carried out to ensure that the value
of the investments in subsidiaries are not carried at above their
recoverable amounts. 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 expected growth rates.
Such estimates and judgements are subject to change as a result of
changing economic conditions and actual cash flows may differ from
forecasts.
the potential financial impacts of increasing inflationary pressures.
Details are set out in note 9 to the consolidated financial statements.
2. Income statement
Note 3 to the consolidated financial statements provides details of the
remuneration of the company’s auditor for the group.
Information on Directors’ emoluments, share and other interests,
transactions and pension entitlements is included in the Directors’
remuneration report in this Annual Report.
3. Investment in subsidiary undertakings
Cost
At 30 June 2021
Additions
At 30 June 2022
Provision
At 30 June 2021
Increase in the year
At 30 June 2022
Carrying amount
At 30 June 2022
At 30 June 2021
£ million
72,698
3
72,701
(11,140)
—
(11,140)
61,561
61,558
Investments in subsidiary undertakings are stated at historical cost of
£72,701 million (2021 – £72,698 million) less impairment provisions of
£11,140 million (2021 – £11,140 million).
Investments in subsidiary undertakings include £137 million (2021 –
£134 million) of costs in respect of share-based payments, granted to
subsidiary undertakings which were not recharged to the subsidiaries.
The additions comprise £3 million not recharged and capitalised as a
cost of investment during the year ended 30 June 2022.
A list of group companies as at 30 June 2022 is provided in note 10.
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Diageo Annual Report 2022
6. Post employment benefits
The movement in the net surplus for the two years ended 30 June 2022,
for all UK post employment plans for which the company is the sponsor,
is as follows:
8. Financial guarantees and letters of comfort
The company has guaranteed certain external borrowings of
subsidiaries and other group companies which at 30 June 2022
amounted to £15,933 million (2021 – £14,102 million).
Plan assets
Plan liabilities
Net surplus
£ million
£ million
£ million
At 30 June 2020
Charge before taxation
Other comprehensive (loss)/income
Contributions by group companies
Employee contributions
Benefits paid
At 30 June 2021
Charge before taxation
7,696
(6,833)
109
(237)
51
1
(155)
128
—
(1)
(279)
279
7,341
134
(6,582)
(161)
Other comprehensive (loss)/income
(1,191)
1,557
863
(46)
(109)
51
—
—
759
(27)
366
46
—
—
Post
employment
plans
Other
temporary
differences
£ million
£ million
£ million
Contributions by group companies
Employee contributions
Benefits paid
At 30 June 2022
46
1
—
(1)
(290)
290
6,041
(4,897)
1,144
The net surplus for the UK post employment plans of £1,144 million (2021
– £759 million) for which the company is a sponsor comprises funded
plans of £1,210 million (2021 – £854 million) disclosed as part of non-
current assets and unfunded liabilities of £66 million (2021 – £95 million)
disclosed as part of non-current liabilities.
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.
Additional information on the UK post employment plans and the
principal risks and assumptions applicable is disclosed in note 14 to the
consolidated financial statements.
7. Provisions
At 30 June 2021
Provisions utilised during the year
Unwinding of discounts
At 30 June 2022
Thalidomide
£ million
179
(15)
5
169
The company’s commitment to the UK Thalidomide Trust is discounted
and will be utilised over the period of the commitment up to 2037.
At 30 June 2022, £11 million (2021 – £14 million) of provision is
current and £158 million (2021 – £165 million) is non-current.
The company has also provided irrevocable guarantees relating to
the liabilities of certain of its Dutch subsidiaries. In addition, the company
has provided a guarantee to the Guinness Ireland Group Pension
Scheme. The company has assessed that the likelihood of these
guarantees being called is remote. The Directors do not expect the
company to be liable for any legal obligation in respect of these
financial guarantee agreements, and they have been recognised at nil
fair value.
The company issues letter of comfort to provide sufficient funds to
directly owned subsidiary undertakings as and when required.
9. Shareholders’ funds
(a) Merger reserve
On the acquisition of a business, or of an interest in an associate, fair
values, reflecting conditions at the date of acquisition, are attributed to
the net assets acquired. Where merger relief is applicable under the UK
Companies Acts, the difference between the fair value of the business
acquired and the nominal value of shares issued as purchase
consideration is treated as a merger reserve.
(b) Own shares
At 30 June 2022, own shares comprised 2 million ordinary shares held
by employee share trusts (2021 – 2 million; 2020 – 2 million); 217 million
ordinary shares repurchased and held as treasury shares (2021 – 221
million; 2020 –222 million); and nil ordinary shares held as treasury
shares for hedging share scheme grants (2021 – nil ; 2020 – 3 million).
During the year ended 30 June 2022, the group purchased
61 million ordinary shares (2021 – 3 million; 2020 – 39 million),
representing approximately 2.4% of the issued ordinary share capital
(2021 – 0.1%; 2020 – 1.5%) at an average price of 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 £1 million of transaction costs; 2020 – 3243
pence per share, and an aggregate cost of £1,282 million, including £7
million of transaction costs) under the share buyback programme. The
shares purchased under the share buyback programmes were
cancelled.
A financial liability of £117 million was established at 30 June 2022,
representing the 3.3 million shares that were expected to be purchased
by 28 July 2022.
Information on movements in own shares is provided in note 18(c) to
the consolidated financial statements.
(c) Retained earnings
£7,672 million (2021 – £10,543 million) of retained earnings is available
for the payment of dividends or purchases of own shares. Determining
the company’s reserves available for distribution is complex and
requires, in some instances, the application of judgement. The company
has determined what is realised and unrealised in accordance with the
Companies Act 2006 and the guidance included in ICAEW Technical
Release TECH 02/17BL ‘Guidance on realised and distributable profits
under the Companies Act 2006’. The company’s reserves available for
distribution include adjustments to retained earnings in respect of the
unrealised portion of the dividend in specie received by the company,
post employment benefit surpluses and share-based payment charges
capitalised to investments.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
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199
199
10. Group companies
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates, joint ventures and joint arrangements,
the country of incorporation and the effective percentage of equity owned, as at 30 June 2022 are disclosed below. Unless otherwise stated the
share capital disclosed comprises ordinary shares which are indirectly held by Diageo plc.
FULLY OWNED SUBSIDIARIES
Angola
Rua Fernao de Sousa, Condominio Bengo, Letter
A, 11.s floor, Fraction A37, neighbourhood Vila
Alice, Province of Luanda
Diageo Angola Limitada
Argentina
Bernardo de Irigoyen 972, floor 7, office A, CABA
Diageo de Argentina S.A.
Australia
162 Blues Point Road, Level 1, NSW, 2060,
McMahons Point
Bundaberg Distilling Investments Pty Ltd(3)
Diageo Australia Limited(3)
Whittred Street, QLD, 4670, Bundaberg
Bundaberg Distilling Company Pty. Limited(5)
Austria
Teinfaltstrasse 8, 1010, Wien
Diageo Austria GmbH
Belgium
Z.3 Doornveld 150, 1731, Zellik
Diageo Belgium N.V.
Bermuda
Victoria Place, 5th Floor, 31 Victoria Street,
Hamilton, HM10
Atalantaf Limited
Brazil
Av. Washington Soares, 1280, Ceará, 60.810-350,
Fortaleza
Ypioca industrial de Bebidas S.A.
Fazenda Santa Eliza, Zona Rural, Ceará,
62.685-000, Paraipaba
Ypioca Agricola LTDA
Rua Olimpiadas, 205, floor 14-15, 04551-000, Sao
Paulo
Diageo Brasil Ltda
Bulgaria
7 Iskarsko Shose Blvd., Trade Center Europe,
building 12, floor 2, 1528, Sofia
Diageo Bulgaria Ltd
Cameroon
Bassa industrial trade zone, Ndog HemII, PO BOX
1213 Douala
Guinness Cameroun S.A.
Canada
134 Peter Street, Suite 1501, Ontario, M5V 2H2,
Toronto
Diageo Canada Holdings Inc.
Diageo Canada Inc.
Boul Henri-Bourassa E., 9225, Local A, Quebec,
H1E 1P6, Montreal
Diageo Americas Supply Quebec Distribution Inc.
Diageo Ireland Quebec Distribution Inc.
Chile
Avenida Apoquindo 5950, Piso 4, Oficina 04-103,
Las Condes Santiago de Chile
Diageo Chile Limitada
200
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China
Hong Kong
2F, building 13, No. 27 XinJinQiao Road, Shanghai,
201206
31/F, Tower two, Times Square, 1 Matheson street
Causeway Bay, Hong Kong
Diageo Liquor Technology (Shanghai) Co. Ltd
Diageo RTD Hong Kong Limited
41F, One Museum Place, 669 Xinzha Road, Jingan
District, Shanghai
Diageo China Limited
Fengxiang Village Fengyu Town, Eryuan County,
Dali Bai Minority Region, Yunnan Province
Diageo Liquor (Dali) Co.,Ltd
Hungary
Dozsa Gyorgy ut 144, Budapest, 1134
Diageo Business Services Private Company
Limited by Shares
Diageo Employee Ownership Program
Organization
No. 9 Quanxing Road, Jinniu District, Chengdu,
610036
Diageo Hungary Finance Limited Liability
Company
Sichuan Chengdu Shuijingfang Group Co., Ltd
No.28 Jiafeng Road, 2502, 5, Pudong District,
200137, Shanghai
Diageo (Shanghai) Limited
Unit B, 2nd Floor, West Logistics Center, No. 88
Linhai Avenue, Nanshan Street, Shenzhen
Diageo Supply Chain (Shenzhen) Co., Ltd
Colombia
100 street No.13 21 Office 502. Bogota
Diageo Colombia S.A.
Costa Rica
1 km Este Periodico La Nacion, Llorente de Tibas,
Edificio Vinum Store, San Jose
Diageo Costa Rica S.A.
Croatia
Hektoroviceva ulica 2, 10000, Zagreb
Diageo Croatia d.o.o.za usluge
Cyprus
3 Themistokli Dervi Ave, Julia House, 1066, Nicosia
Horizon Developments Limited(2)
Czech Republic
Namesti I. P. Pavlova 1789/5. 4th floor, 120 00,
Prague 2
Diageo Czech Marketing Services LLC
Denmark
Sundkrogsgade 19, 2. 2100, Copenhagen
Diageo Denmark AS
Dominican Republic
Av. Lope de Vega no. 29, Santo Domingo 10125
Diageo Dominicana S.R.L.
France
4 Rue Jules Lefebvre, 75009, Paris
Guinness France Holdings SAS
73, Rue de Provence, 75009, Paris
United Distillers France SAS
Germany
Reeperbahn 1, 20359, Hamburg
Belsazar GmbH
Diageo Germany GmbH
Greece
Leof. Kifisias 115, Athens, 115 24
Diageo Hellas S.A.
Guernsey
Diageo Hungary Marketing Services Limited
Liability Company
India
Kempapura Main Road, Opp Nagawara Lake,
Karle SEZ Tower, 2nd floor, Karnataka, 560045,
Bangalore
Diageo Business Services India Private Limited
Marathon Futurex, A-Wing, 2601, 26th Floor, N M
Joshi Marg, Lower Parel, Mumbai, 400 013
Diageo Distilleries Private Limited(7)
Diageo India Private Limited
Indonesia
Jl Jend Sudirman Kav. 76-78, Sudirman Plaza,
Plaza Marein, 15th, Jakarta Selatan, 12910, Jakarta
PT Gitaswara Indonesia(9)
Ireland
Nangor House, Western Estate, Nangor Road,
Dublin, 12
Gilbeys of Ireland Unlimited Company
R & A Bailey & Co Unlimited Company
UDV Ireland Group (Trustees) Designated Activity
Company
St. James's Gate, Dublin 8
AGS Employee Shares Nominees (Ireland)
Designated Activity Company
Arthur Guinness Son & Company (Dublin)
Unlimited Company(2)
Diageo Ireland Finance 1 Unlimited Company
Diageo Ireland Holdings Unlimited Company
Diageo Ireland Pension Trustee Designated
Activity Company(2)
Diageo Ireland Unlimited Company
Diageo Retirement Savings Pension Plan
Designated Activity Company
Diageo Turkey Holdings Limited
Guinness Storehouse Limited
Irish Ale Breweries Holdings Unlimited Company(3)
R&A Bailey Pension Trustee Designated Activity
Company(2)
Italy
Strada Statale 63, 12069, Santa Vittoria d'Alba
(CN)
Diageo Operations Italy S.p.A.
Via Ernesto Lugaro 15, 10126, Torino
Diageo Italia S.p.A.
Jamaica
Heritage Hall, Le Marchant Street, St Peter Port,
GY1 4HY
Diageo Group Insurance Company Limited
7th Floor, Scotiabank Centre, Duke Street, Kingston
Trelawny Estates Limited
10. Group companies
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates, joint ventures and joint arrangements,
the country of incorporation and the effective percentage of equity owned, as at 30 June 2022 are disclosed below. Unless otherwise stated the
share capital disclosed comprises ordinary shares which are indirectly held by Diageo plc.
FULLY OWNED SUBSIDIARIES
Angola
Rua Fernao de Sousa, Condominio Bengo, Letter
A, 11.s floor, Fraction A37, neighbourhood Vila
Alice, Province of Luanda
Diageo Angola Limitada
Argentina
Diageo de Argentina S.A.
Australia
Bernardo de Irigoyen 972, floor 7, office A, CABA
162 Blues Point Road, Level 1, NSW, 2060,
McMahons Point
Bundaberg Distilling Investments Pty Ltd(3)
Diageo Australia Limited(3)
Whittred Street, QLD, 4670, Bundaberg
Bundaberg Distilling Company Pty. Limited(5)
Teinfaltstrasse 8, 1010, Wien
Diageo Austria GmbH
Austria
Belgium
Z.3 Doornveld 150, 1731, Zellik
Diageo Belgium N.V.
Bermuda
Hamilton, HM10
Atalantaf Limited
Brazil
Fortaleza
Av. Washington Soares, 1280, Ceará, 60.810-350,
Ypioca industrial de Bebidas S.A.
Fazenda Santa Eliza, Zona Rural, Ceará,
62.685-000, Paraipaba
Ypioca Agricola LTDA
Rua Olimpiadas, 205, floor 14-15, 04551-000, Sao
Paulo
Diageo Brasil Ltda
Bulgaria
No.28 Jiafeng Road, 2502, 5, Pudong District,
200137, Shanghai
Diageo (Shanghai) Limited
Unit B, 2nd Floor, West Logistics Center, No. 88
Linhai Avenue, Nanshan Street, Shenzhen
Diageo Supply Chain (Shenzhen) Co., Ltd
Colombia
100 street No.13 21 Office 502. Bogota
Diageo Colombia S.A.
Costa Rica
1 km Este Periodico La Nacion, Llorente de Tibas,
Edificio Vinum Store, San Jose
Hektoroviceva ulica 2, 10000, Zagreb
Diageo Croatia d.o.o.za usluge
Croatia
Cyprus
Namesti I. P. Pavlova 1789/5. 4th floor, 120 00,
Diageo Czech Marketing Services LLC
Czech Republic
Prague 2
Denmark
Sundkrogsgade 19, 2. 2100, Copenhagen
Victoria Place, 5th Floor, 31 Victoria Street,
Diageo Costa Rica S.A.
Bassa industrial trade zone, Ndog HemII, PO BOX
Guinness Cameroun S.A.
Cameroon
1213 Douala
Canada
Toronto
134 Peter Street, Suite 1501, Ontario, M5V 2H2,
Diageo Canada Holdings Inc.
Diageo Canada Inc.
Boul Henri-Bourassa E., 9225, Local A, Quebec,
H1E 1P6, Montreal
Diageo Americas Supply Quebec Distribution Inc.
Diageo Ireland Quebec Distribution Inc.
Chile
Avenida Apoquindo 5950, Piso 4, Oficina 04-103,
Las Condes Santiago de Chile
Diageo Chile Limitada
Diageo Dominicana S.R.L.
France
4 Rue Jules Lefebvre, 75009, Paris
Guinness France Holdings SAS
73, Rue de Provence, 75009, Paris
United Distillers France SAS
Germany
Reeperbahn 1, 20359, Hamburg
Belsazar GmbH
Diageo Germany GmbH
Greece
Leof. Kifisias 115, Athens, 115 24
Diageo Hellas S.A.
Guernsey
GY1 4HY
200
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Diageo Annual Report 2022
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Kempapura Main Road, Opp Nagawara Lake,
Karle SEZ Tower, 2nd floor, Karnataka, 560045,
Bangalore
Diageo Business Services India Private Limited
Marathon Futurex, A-Wing, 2601, 26th Floor, N M
Joshi Marg, Lower Parel, Mumbai, 400 013
Diageo Distilleries Private Limited(7)
Diageo India Private Limited
Indonesia
Jl Jend Sudirman Kav. 76-78, Sudirman Plaza,
Plaza Marein, 15th, Jakarta Selatan, 12910, Jakarta
PT Gitaswara Indonesia(9)
Ireland
Dublin, 12
Nangor House, Western Estate, Nangor Road,
Gilbeys of Ireland Unlimited Company
Company
St. James's Gate, Dublin 8
AGS Employee Shares Nominees (Ireland)
Designated Activity Company
Arthur Guinness Son & Company (Dublin)
Unlimited Company(2)
Diageo Ireland Finance 1 Unlimited Company
Diageo Ireland Holdings Unlimited Company
Diageo Ireland Pension Trustee Designated
Diageo Ireland Unlimited Company
Diageo Retirement Savings Pension Plan
Designated Activity Company
Diageo Turkey Holdings Limited
Guinness Storehouse Limited
Irish Ale Breweries Holdings Unlimited Company(3)
R&A Bailey Pension Trustee Designated Activity
Company(2)
Italy
(CN)
Strada Statale 63, 12069, Santa Vittoria d'Alba
Diageo Operations Italy S.p.A.
Via Ernesto Lugaro 15, 10126, Torino
Diageo Italia S.p.A.
Jamaica
Trelawny Estates Limited
3 Themistokli Dervi Ave, Julia House, 1066, Nicosia
R & A Bailey & Co Unlimited Company
Horizon Developments Limited(2)
UDV Ireland Group (Trustees) Designated Activity
7 Iskarsko Shose Blvd., Trade Center Europe,
building 12, floor 2, 1528, Sofia
Diageo Bulgaria Ltd
Diageo Denmark AS
Dominican Republic
Av. Lope de Vega no. 29, Santo Domingo 10125
Activity Company(2)
Heritage Hall, Le Marchant Street, St Peter Port,
7th Floor, Scotiabank Centre, Duke Street, Kingston
Diageo Group Insurance Company Limited
Japan
Nigeria
South Korea
9-7-1 Akasaka, Minato-ku, Tokyo 164-0001
Diageo Japan Administration Services K.K.
Oba Akran Avenue Ikeja, 24, Lagos, PMB 21071,
100001
932-94, Daewol-ro, Daewol-myun, Icheon-shi,
Gyeonggi-do, 17342, Icheon
China
201206
610036
2F, building 13, No. 27 XinJinQiao Road, Shanghai,
31/F, Tower two, Times Square, 1 Matheson street
Hong Kong
Causeway Bay, Hong Kong
Diageo Liquor Technology (Shanghai) Co. Ltd
Diageo RTD Hong Kong Limited
41F, One Museum Place, 669 Xinzha Road, Jingan
Hungary
District, Shanghai
Diageo China Limited
Fengxiang Village Fengyu Town, Eryuan County,
Dali Bai Minority Region, Yunnan Province
Diageo Liquor (Dali) Co.,Ltd
Dozsa Gyorgy ut 144, Budapest, 1134
Diageo Business Services Private Company
Limited by Shares
Diageo Employee Ownership Program
No. 9 Quanxing Road, Jinniu District, Chengdu,
Diageo Hungary Finance Limited Liability
Sichuan Chengdu Shuijingfang Group Co., Ltd
Diageo Hungary Marketing Services Limited
Organization
Company
Liability Company
India
Diageo Japan K.K
Kenya
L R NO 1870/1/176, Aln House, Eldama Ravine
Close, off Eldama Ravine Road, Westlands,
Nairobi
Diageo Kenya Limited
La Reunion
14, rue Jules Thirel A30 97460 Saint Paul, Reunion
Island
Diageo Reunion SAS
Lebanon
Verdun Street, Ibiza Building, Beirut, PO Box
113-5631
Diageo Lebanon Holding SAL
Diageo LENA Off-shore SAL
Mexico
Diageo Brands Nigeria Ltd
Norway
Diageo Korea Company Limited
Windsor Global Co., Ltd.
Apotekergata 10, 0180 Oslo
Spain
Diageo Norway AS
Panama
Avda de la Victoria 32, Edificio Spirit, 28023,
Madrid
Costa del Este, Ave La Rotonda, Business Park,
Torre V. piso 15 Panama City
Diageo Espana S.A.
Sweden
Diageo Panama S.A.
Gavlegatan street 22/C, 11330, Stockholm
Panama city, West Boulevard, PH ARIFA, 9th and
10th, Santa Maria Business
Diageo Sweden AB
Switzerland
Diageo Taiwan Inc.
Paraguay
Avda Aviadores del Chaco 2050. Edificio World
trade center. Torre 3 piso 11
Diageo Paraguay S.R.L.
Peru
Av. Ejercito Nacional, 843-B, Torre Paseo Acceso B,
2, Mexico City, 11520
Victor Andres Belaunde 147, Via Principal 133,
Interior 107, Piso 10, San Isidro, Lima
Diageo Mexico II SA de CV Sociedad Financiera
de Objeto Multiple, E.N.R.
Calle Gobernador Rafael Rebollar 95, Col San
Miguel de Chapultepec, Del Miguel Hidalgo CP
11850, Mexico City
CASA UM, S.A.P.I. DE C.V.
Carretera Atotonilco - Guadalajara, Atotonilco el
Alto, Jalisco, 47750
Diageo Mexico Comercializadora S.A. de C.V.
Diageo Mexico SA de CV
Independencia S/N Santiago, Matatlán, Oaxaca
70440
Sombra Mezcal S. de R.L. de S.V.
Porfirio Diaz 17, Jalisco, 47750, Atotonilco el Alto
Diageo Mexico Operaciones S.A. de C.V.
Don Julio Agavera S.A. de C.V.
Don Julio Agricultura y Servicios S.A. de C.V.
Servicios Agavera, S.A. de C.V.
Mozambique
Estrada Nacional numero 1, Micanhine,
Marracuene
Diageo Supply Marracuene Lda.
Netherlands
De Ruyterkades, Postbus 2852 1000cw Amsterdam
United Distillers & Vintners (SJ) B.V.(2)
Molenwerf 12, 1014 BG, Amsterdam
Diageo Atlantic B.V.
Diageo Brands B.V.
Diageo Capital B.V.(1)
Diageo Highlands Holding B.V.
Diageo Holdings Netherlands B.V.
Diageo Nederland B.V.
Diageo Relay B.V.(5)
Global Farming Initiative B.V.
Selviac Nederland B.V.
New Zealand
123 Carlton Gore Road, Level 2, Newmarket, 1023,
Auckland
Diageo New Zealand Limited(3)
Diageo Peru S.A.
Philippines
10th Floor Commerce and Industry Plaza Building,
McKinley Hill Dr, Taguig, 1634
Diageo Asia Pacific Shared Services Centre
Limited, Inc.
Unit 1, 17th Floor, Ore Central 9th Avenue corner
31st Street Bonifacio Global City, Taguig City, 1634
Diageo Export SR Inc.(2)
Diageo Philippines Free Port Inc.(2)
Diageo Philippines Inc.
North Island United Enterprise Holdings Inc.(2)
United Distillers & Vintners Philippines Inc.(2)
Poland
Przyokopowa Str. 31, PL 01 – 208 Warsaw
Diageo Polska Sp. z o.o.
Portugal
Avenida D. Joao II, No 50, piso 2, letra D, Edificio
Mar Vermelho, 1990-095 Lisboa
Diageo Portugal - Distribuidora de Bebidas,
Unipessoal, Lda
Romania
Expo Business Park, Street Aviator Popisteanu 54A,
Cladirea 2, et 1-3, Sector 1, Bucurest, 012244
Diageo Balkans S.R.L.
Russia
Kaspiyskaya Street, 22, main bld. 1, bld. 5, floor 3,
apartment VII, room 31a, 115304, Moscow
D Distribution Joint-Stock Company
Diageo Brands Distributors LLC
Singapore
112 Robinson Road, 1, 5th Floor, 1, Singapore
68902
Diageo Singapore Pte Ltd.
Diageo Singapore Supply Pte. Ltd.
Streetcar Investment Holding Pte. Ltd.
South Africa
Building 3, Maxwell Office Park, Magwa Crescent
West, Waterfall City, Midrand, 2090
Diageo South Africa (Pty) Limited
United Distillers Southern Africa (Proprietary)
Limited
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Place de la Gare 12, Lausanne, 1003
Diageo Suisse S.A.
Tanzania
CRB Africa Legal Attorneys, Plot 60, Ursino Street
P.O. Box 32840, Dar es Salaam
Sumagro Limited(2)
Turkey
Esentepe Mah. Bahar Sk. Ozdilek River Plaza
Vyndham Grand Apt. No 13/25 Sisli, Istanbul
Mey Alkollü İçkiler Sanayi ve Ticaret A.Ş.
Mey İçki Sanayi ve Ticaret A.Ş.
Ukraine
1v Pavla Tychyny avenue, 2152, Kyiv
Diageo Ukraine LLC
United Kingdom
11 Lochside Place, Edinburgh, EH12 9HA
Arthur Bell & Sons Limited(2)
Copper Dog Whisky Limited
Diageo Capital plc(1)
Diageo Scotland Limited
J & B Scotland Limited(2)
John Haig & Company Limited
The Lochnagar Distillery Limited(2)
William Sanderson and Son Limited(2)
Zepf Technologies UK Limited
16 Great Marlborough St, London, W1F 7HS
Anna Seed 83 Limited
Anyslam Investments
Anyslam Limited(1),(8)
Cellarers (Wines) Limited
Chase Distillery (Holdings) Limited
Chase Distillery Limited
DEF Investments Limited
Diageo (IH) Limited(2)
Diageo CL1 Limited
Diageo Distribution Company Limited
Diageo DV Limited
Diageo Eire Finance & Co
Diageo Employee Shares Nominees Limited(1),(2)
Diageo Finance plc(1)
Diageo Finance US Limited
Diageo Financing Turkey Limited
Diageo Great Britain Limited
Diageo Healthcare Limited(2)
Diageo Holdings Limited(1)
Diageo Holland Investments Limited(2)
Diageo Investment Holdings Limited
Diageo Overseas Holdings Limited(6)
Diageo Annual Report 2022
Diageo Annual Report 2022
201
201
Pasaje Paseo De Las Carretas, 2580, oficina 1301,
Montevideo
No. 21 Shuijing Street, Jinjiang District, Chengdu,
610011
Diageo Scotland Investment Limited
Diageo Share Ownership Trustees Limited(1),(2)
CT Staffing Services LLC
Vivanda Inc.
Diageo UK Turkey Holdings Limited
Diageo UK Turkey Limited
Diageo US Holdings
Diageo US Investments
Grand Metropolitan Capital Company Limited
Grand Metropolitan Estates Limited
Grand Metropolitan International Holdings Limited
Grand Metropolitan Limited
Guinness Limited(1)
Guinness Overseas Holdings Limited(1)
Guinness Overseas Limited
James Buchanan & Company Limited(2)
John Walker and Sons Limited(2)
Tanqueray Gordon and Company, Limited(1)
The Distillers Company (Biochemicals) Limited(2)
The Pimm's Drinks Company Limited(2)
Tipplesworth Limited
UDV (SJ) Holdings Limited(1)
UDV (SJ) Limited
United Distillers France Limited
3rd Floor Capital House, 3 Upper Queen Street,
Belfast
Diageo Global Supply IBC Limited
Diageo Northern Ireland Limited(1)
S & B Production Limited
61 St. James's Street, London, SW1A 1LZ
Justerini & Brooks, Limited
United States
1 Estate Annaberg & Shannon Grove, RR1 Box
9400, Kingshill, VI 00850-9703
Diageo USVI Inc.
1209 Orange Street, New Castle, Delaware 19801
DV Technology LLC
1425 South Kingstown Road, South Kingstown, RI
02879
Diageo Loyal Spirits Corporation
381 Park Avenue South, Suite 1015, New York, NY
10016
Aviation Gin LLC
Davos Brands LLC
Uruguay
Diageo Uruguay SA
Venezuela
Av Intercomunal Alí Primera, Los Taques, Estado
Falcón
DV Paraguana, C.A.
Av La Hormiga con Intersección de la Carretera
via Payara, C.C. Tierra Buena Acarigua
Mull Trading C.A.
Av. Circunvalacion Norte (Jose Asunsion
Rodriguez) Edificio Distribuidora Metropol,
Porlamar, Estado Nueva Esparta
Clyde Trading, C.A.(5)
Cupar Trading, C.A.(5)
Diageo Nueva Esparta, C.A.(2)
DV Trading, C.A.(5)
Zeta Importers C.A.(5)
Ave. San Felipe Urbanización La Castellana,
Edificio Centro Coinasa, Piso 6. Caracas, 1060
Diageo Venezuela C.A.
Calle 1 con calle CaIIe 1 Este, Edificio y Galpon
BTP, Zona Industrial La Caracarita, Municipio Los
Guayos, estado Carabobo
Arran Tradings, C.A.
DV Release, C.A.
Islay Trading, C.A.
L4L Trading, C.A.
Lismore Trading, C.A.
Skye Trading C.A.
Carretera Nacional Acarigua-Barquisimeto Casa
Agropecuaria Las Marias I C.A.S-N Sector los
Guayones La Miel, Lara.
Agropecuarias Las Marias I C.A.
175 Greenwich Street, Three World Trade Center,
New York, NY 10007
Vietnam
Ballroom Acquisition, Inc.
Davos Services LLC
Diageo Americas Supply, Inc.
Diageo Americas, Inc.
Diageo Beer Company USA
Diageo Inc.
Diageo Investment Corporation
Diageo Latin America & Caribbean LLC
Diageo North America Foundation, Inc.
Diageo North America, Inc.(5)
Liquor Investment LLC
Soh Spirits LLC
Stirrings LLC
The Bulleit Distillery, Inc.
Whisky Archive Inc.
300 Delaware Ave Ste 210-A Wilmington, DE
19801
21Seeds Inc.
3411 Silverside Road Tatnall Building, Ste 104
Wilmington, DE 19810
Casamigos Spirits Company LLC
Casamigos Tequila LLC
202
202
Diageo Annual Report 2022
Diageo Annual Report 2022
No. 157, 21/8 Street, Phuoc My Ward, Phan Rang -
Thap Cham City, Ninh Thuan Province
Diageo Vietnam
Zimbabwe
48 Midlothian Avenue, Eastlea, Harare
International Distillers - Zimbabwe (Private)
Limited(2)
SUBSIDIARIES WHERE THE EFFECTIVE
INTEREST IS LESS THAN 100%
Angola
Rua Dom Eduardo Andre Muaca, S/No, LOTE C4,
Luanda
DIREF Industria de Bebidas,Lda-Angola JV -
50.10%
Australia
Bentleys SA, Level 5, 63 Pirie Street, Adelaide, SA
5000
Seedlip Australia Pty. Ltd. - 91.00%
British Virgin Islands
Commerce House, Wickhams Cay 1, PO Box 3140,
Road Town, Tortola
Rum Creation & Products Inc.(4) - 50.00%
Sea Meadow House, Blackburne Highway, P.O.
Box 116, Road Town, Tortola
Palmer Investment Group Limited(11) - 55.94%
USL Holdings Limited(2),(11) - 55.94%
Canada
Labatt House, 207 Queen's Quay West, Suite 299,
Ontario, M5J 1A7, Toronto
Guinness Canada Limited - 51.00%
China
Chengdu Swellfun Marketing Co. Limited - 63.17%
No. 38 Jiuyuan Road, Kongming Street, Qionglai,
Chengdu
Chengdu Swellfun Liquor Co. Limited - 63.17%
No. 9 Quanxing Road, Jinniu District, Chengdu,
610036
Chengdu Jianghai Trade Development Co.
Limited - 63.17%
Chengdu Tengyuan Liquor Marketing Co. Limited
- 63.17%
Sichuan Swellfun Co., Ltd - 63.17%
No. 998, Juanxing Road, Hongguang County,
Chengdu, 610000
Chengdu Ruijin Trading Co. Limited - 63.17%
Unit 215, Xinxing Building, No. 8, Jia Feng Road,
Wai Gao Qiao Free Trade Zone, Shanghai
United Spirits (Shanghai) Trading Company Ltd(11)
- 55.94%
Cuba
Avenida Malecón No. 211, entre J y K, Vedado,
Plaza de la Revolución, Havana
Ron Santiago, S.A. - 50.00%
Ghana
Guinness Brewery, Plot 1 Block L, Industrial Area,
Kaasi, P. O. Box 1536, Kumasi
Guinness Ghana Breweries Plc - 80.40%
Guatemala
Calle 8-19 zona 9, Quetzaltenango
Anejos De Altura, Sociedad Anonima - 50.00%
India
C/o Workafella, Western Aqua-5th Floor,
Whitefield Kondapur, Hitech City Hyderabad,
Telangana, 500 081
Sovereign Distilleries Limited(11) - 55.94%
UB Tower, 24 Vittal Mallya Road, Bangalore,
560001
Pioneer Distilleries Limited(11) - 41.95%
Royal Challengers Sports Private Limited(11) -
55.94%
United Spirits Limited(11) - 55.94%
Indonesia
Jl. Raya Kaba-Kaba No. 88, Banjar Carik Padang,
Desa Nyambu, Kecamatan Kediri, Kabupaten
Tabanan, Provinsi Bali
PT Langgeng Kreasi Jayaprima - 80.00%
Kenya
Garden City Business Park, 5th Floor, P.O. Office
Box Number 30161-00100, Nairobi
East African Breweries Plc. - 50.03%
Tusker House, Ruaraka, PO Box 30161, 00100
Nairobi GPO
Allsopp (East Africa) Limited(2) - 48.52%
EABL International Limited(2) - 50.03%
East African Maltings Limited - 50.03%
Kenya Breweries Limited(5) - 50.03%
Diageo Scotland Investment Limited
CT Staffing Services LLC
Diageo Share Ownership Trustees Limited(1),(2)
Vivanda Inc.
Palmer Investment Group Limited(11) - 55.94%
USL Holdings Limited(2),(11) - 55.94%
Diageo UK Turkey Holdings Limited
381 Park Avenue South, Suite 1015, New York, NY
Canada
Diageo UK Turkey Limited
Diageo US Holdings
Diageo US Investments
Grand Metropolitan Capital Company Limited
Grand Metropolitan Estates Limited
Grand Metropolitan International Holdings Limited
Grand Metropolitan Limited
Guinness Limited(1)
Guinness Overseas Holdings Limited(1)
Falcón
10016
Aviation Gin LLC
Davos Brands LLC
Uruguay
Montevideo
Diageo Uruguay SA
Venezuela
Pasaje Paseo De Las Carretas, 2580, oficina 1301,
No. 21 Shuijing Street, Jinjiang District, Chengdu,
Labatt House, 207 Queen's Quay West, Suite 299,
Ontario, M5J 1A7, Toronto
Guinness Canada Limited - 51.00%
China
610011
Chengdu
610036
- 63.17%
Chengdu Swellfun Marketing Co. Limited - 63.17%
No. 38 Jiuyuan Road, Kongming Street, Qionglai,
Chengdu Swellfun Liquor Co. Limited - 63.17%
No. 9 Quanxing Road, Jinniu District, Chengdu,
Chengdu Jianghai Trade Development Co.
Limited - 63.17%
Chengdu Tengyuan Liquor Marketing Co. Limited
Sichuan Swellfun Co., Ltd - 63.17%
No. 998, Juanxing Road, Hongguang County,
Chengdu, 610000
Chengdu Ruijin Trading Co. Limited - 63.17%
Unit 215, Xinxing Building, No. 8, Jia Feng Road,
Wai Gao Qiao Free Trade Zone, Shanghai
United Spirits (Shanghai) Trading Company Ltd(11)
Avenida Malecón No. 211, entre J y K, Vedado,
Plaza de la Revolución, Havana
Ron Santiago, S.A. - 50.00%
Guinness Brewery, Plot 1 Block L, Industrial Area,
Kaasi, P. O. Box 1536, Kumasi
Guinness Ghana Breweries Plc - 80.40%
Ghana
Guatemala
Calle 8-19 zona 9, Quetzaltenango
Anejos De Altura, Sociedad Anonima - 50.00%
C/o Workafella, Western Aqua-5th Floor,
Whitefield Kondapur, Hitech City Hyderabad,
Telangana, 500 081
Sovereign Distilleries Limited(11) - 55.94%
UB Tower, 24 Vittal Mallya Road, Bangalore,
Pioneer Distilleries Limited(11) - 41.95%
Royal Challengers Sports Private Limited(11) -
United Spirits Limited(11) - 55.94%
Jl. Raya Kaba-Kaba No. 88, Banjar Carik Padang,
Desa Nyambu, Kecamatan Kediri, Kabupaten
Tabanan, Provinsi Bali
560001
55.94%
Indonesia
Kenya
Garden City Business Park, 5th Floor, P.O. Office
Box Number 30161-00100, Nairobi
East African Breweries Plc. - 50.03%
Tusker House, Ruaraka, PO Box 30161, 00100
Nairobi GPO
Allsopp (East Africa) Limited(2) - 48.52%
EABL International Limited(2) - 50.03%
East African Maltings Limited - 50.03%
Kenya Breweries Limited(5) - 50.03%
Av Intercomunal Alí Primera, Los Taques, Estado
DV Paraguana, C.A.
Av La Hormiga con Intersección de la Carretera
via Payara, C.C. Tierra Buena Acarigua
Mull Trading C.A.
Av. Circunvalacion Norte (Jose Asunsion
Rodriguez) Edificio Distribuidora Metropol,
Porlamar, Estado Nueva Esparta
Clyde Trading, C.A.(5)
Cupar Trading, C.A.(5)
Diageo Nueva Esparta, C.A.(2)
DV Trading, C.A.(5)
Zeta Importers C.A.(5)
Ave. San Felipe Urbanización La Castellana,
Edificio Centro Coinasa, Piso 6. Caracas, 1060
- 55.94%
Cuba
Diageo Venezuela C.A.
Calle 1 con calle CaIIe 1 Este, Edificio y Galpon
BTP, Zona Industrial La Caracarita, Municipio Los
Guayos, estado Carabobo
Arran Tradings, C.A.
DV Release, C.A.
Islay Trading, C.A.
L4L Trading, C.A.
Lismore Trading, C.A.
Skye Trading C.A.
Carretera Nacional Acarigua-Barquisimeto Casa
Agropecuaria Las Marias I C.A.S-N Sector los
India
Guayones La Miel, Lara.
Agropecuarias Las Marias I C.A.
Vietnam
No. 157, 21/8 Street, Phuoc My Ward, Phan Rang -
Thap Cham City, Ninh Thuan Province
Diageo Vietnam
Zimbabwe
48 Midlothian Avenue, Eastlea, Harare
International Distillers - Zimbabwe (Private)
SUBSIDIARIES WHERE THE EFFECTIVE
INTEREST IS LESS THAN 100%
Limited(2)
Angola
Luanda
50.10%
Australia
5000
DIREF Industria de Bebidas,Lda-Angola JV -
Bentleys SA, Level 5, 63 Pirie Street, Adelaide, SA
Seedlip Australia Pty. Ltd. - 91.00%
British Virgin Islands
Road Town, Tortola
Commerce House, Wickhams Cay 1, PO Box 3140,
Rum Creation & Products Inc.(4) - 50.00%
Sea Meadow House, Blackburne Highway, P.O.
Box 116, Road Town, Tortola
Rua Dom Eduardo Andre Muaca, S/No, LOTE C4,
PT Langgeng Kreasi Jayaprima - 80.00%
Guinness Overseas Limited
James Buchanan & Company Limited(2)
John Walker and Sons Limited(2)
Tanqueray Gordon and Company, Limited(1)
The Distillers Company (Biochemicals) Limited(2)
The Pimm's Drinks Company Limited(2)
Tipplesworth Limited
UDV (SJ) Holdings Limited(1)
UDV (SJ) Limited
United Distillers France Limited
3rd Floor Capital House, 3 Upper Queen Street,
Belfast
Diageo Global Supply IBC Limited
Diageo Northern Ireland Limited(1)
S & B Production Limited
61 St. James's Street, London, SW1A 1LZ
Justerini & Brooks, Limited
United States
1 Estate Annaberg & Shannon Grove, RR1 Box
9400, Kingshill, VI 00850-9703
1209 Orange Street, New Castle, Delaware 19801
Diageo USVI Inc.
DV Technology LLC
1425 South Kingstown Road, South Kingstown, RI
02879
Diageo Loyal Spirits Corporation
175 Greenwich Street, Three World Trade Center,
New York, NY 10007
Ballroom Acquisition, Inc.
Davos Services LLC
Diageo Americas Supply, Inc.
Diageo Americas, Inc.
Diageo Beer Company USA
Diageo Inc.
Diageo Investment Corporation
Diageo Latin America & Caribbean LLC
Diageo North America Foundation, Inc.
Diageo North America, Inc.(5)
Liquor Investment LLC
Soh Spirits LLC
Stirrings LLC
The Bulleit Distillery, Inc.
Whisky Archive Inc.
19801
21Seeds Inc.
300 Delaware Ave Ste 210-A Wilmington, DE
3411 Silverside Road Tatnall Building, Ste 104
Wilmington, DE 19810
Casamigos Spirits Company LLC
Casamigos Tequila LLC
202
202
Diageo Annual Report 2022
Diageo Annual Report 2022
Tembo Properties Limited(2) - 50.03%
UDV Kenya Limited - 76.85%
Lebanon
Beirut Symposium Bldg, 10th floor, Beirut, PO Box
113-5250
Diageo - Lebanon SAL - 84.99%
Mauritius
IFS Court, Twenty Eight, Cybercity, Ebene
Asian Opportunities and Investment Limited(2),(11) -
55.94%
Netherlands
Molenwerf 12, 1014 BG, Amsterdam
Ketel One Worldwide B.V.(4) - 50.00%
Nigeria
Oba Akran Avenue Ikeja, 24, Lagos, PMB 21071,
100001
Guinness Nigeria plc - 58.02%
North Cyprus
Sehit Mehmet Cetin Sokak, Kucuk Sanayi Bölgesi
4, 99450, Gazi Magusa
Turk Alkollu Icki ve Sarap Endustri Ltd. - 66.00%
Philippines
10th Floor Commerce and Industry Plaza Building,
McKinley Hill Dr, Taguig, 1634
ULM Holdings Inc.(2) - 40.00%
Rwanda
Kimihurura, Gasabo, Umujyi was Kigali, 7130 Port
Bell Luzira
East African Breweries Rwanda Limited - 50.03%
Seychelles
O’Brien House, 273 Le Rocher, Mahe
Seychelles Breweries Limited - 54.40%
Singapore
120, Robinson Road, #08-01, Singapore, 068913
United Spirits Singapore Pte. Ltd.(11) - 55.94%
South Sudan
Southern Sudan African Park Hotel, Juba Town
East African Beverages (Southern Sudan)
Limited(2) - 49.53%
Tanzania
2nd Floor, East Wing TDFL Building, Ohio street.
P.O. Box 32840 Dar es Salaam
EABL (Tanzania) Limited(2) - 50.03%
Plot 117/2, Access Road, Nelson Mandela
Expressway, Chang'Ombe Industrial Area, P.O.
Box 41080, Dar es Salaam
Serengeti Breweries Limited(3) - 42.50%
Uganda
Plot 3-17 Port Bell Road, Luzira, Kampala, P.O. Box
7130
Uganda Breweries Limited - 49.03%
Plot No 1 Malt Road, Portbell Luzira P.O. Box 3221
Kampala
Seedlip Ltd - 91.00%
Shaw Wallace Overseas Limited(11) - 55.94%
United Spirits (Great Britain) Limited(11) - 55.94%
United Spirits (UK) Limited(11) - 55.94%
USL Holdings (UK) Limited(11) - 55.94%
United States
175 Greenwich Street, Three World Trade Center,
New York, NY 10007
California Simulcast Inc.(2) - 80.00%
D/CE Holdings LLC - 50.00%
Seedlip Inc. - 91.00%
2950 North Loop W Ste 1200 Houston, TX
77092-8808
Far West Spirits LLC - 99.00%
Venezuela
Ave. San Felipe Urbanización La Castellana,
Edificio Centro Coinasa, Piso 6. Caracas, 1060
Industrias Pampero C.A. - 96.8%
Vietnam
621 Pham Van Chi Street, District 6, Ho Chi Minh
City
Vietnam Spirits and Wine Ltd - 55.00%
ASSOCIATES
Australia
50 Bertie Street, Port Melbourne, Victoria 3207
New World Whisky Distillery PTY Limited - 30.00%
Cabel Partners, Level 5, 1 James Place, North
Sydney, NSW 2060
Mr Black Spirits Pty Ltd. - 45.00%
Curacao
Citco Curacao, Schottegatweg Oost 44,
Willemstad
International Brand Developers N.V.(3) - 25.00%
Denmark
Stauningvej 38, 6900 Skjern
Canbrew B.V.(4) - 28.16%
Spain
Calle General Vara del Rey 5, 1 Piso, 26003
Logroño, La Rioja
El Bandarra, S.L. - 25.00%
Calle Malí, 7 La Laguna, 38320 Santa Cruz de
Tenerife
Compania Cervecera De Canarias, S.A. - 20.00%
Tomino (Ponteverda), 36750, Parroquia de Goian,
Barrio de Centinela, 1
Valdomino Premium Spirits, S.L. - 20.00%
United Kingdom
20 King Street Prince Albert House Maidenhead
SL6 1DT
El Rayo Limited - 20.00%
354 Castlehill, The Royal Mile, Edinburgh, EH1 2NE
The Scotch Whisky Heritage Centre Limited -
29.00%
39-45 Bermondsey Street, London, SE1 3XF
London Botanical Drinks Limited - 20.00%
64 New Cavendish Street, London, W1G 8TB
Pulpex Limited - 36.42%
71-75 Shelton Street, Covent Garden, London,
WC2H 9JQ
Leaf Arbor Limited - 20.00%
Ballindalloch Castle, Ballindalloch, Banffshire AB37
9AX
Ballindalloch Distillery LLP - 33.33%
Harbourside Brewery, Tretoil Farm, Bodmin,
Cornwall, PL30 5BA
The Southwest Fermentorium Limited - 25.00%
Here 470 Bath Road, Arnos Vale, Bristol, BS4 3AP
Caleno Drinks Ltd - 20.00%
United States
1045 Dodge Lane Fallon, NV 89406
Nevada Spirits DE, LLC - 25.00%
1222 SE Gideon Street Portland, OR 97202
Stauning Whisky Holding ApS - 40.00%
Naam Som LLC - 30.00%
France
24/32 rue Jean Goujon, 75008 Paris
Moët Hennessy International - 34.00%
Moët Hennessy, SAS - 34.00%
Germany
Mozartstr. 7, 53115 Bonn
Rheinland Distillers GmbH - 20.00%
Hungary
Soroksari ut 26, Budapest, 1095
Zwack Unicum plc - 26.00%
India
1935 W. Irving Park Chicago, IL 60613
Ritual Beverage Company LLC - 30.62%
2459 E 8th Street, Los Angeles, California 90021
Modern Spirits LLC - 20.00%
3379 Peachtree Road NE, Suite 555, Atlanta, GA
30326
Pronghorn Initiative Holdings, LLC - 49.00%
517 West 39th Street Austin, TX 78751
Gourmet Grade LLC - 19.41%
545 Johnson Avenue, Brooklyn, NY 11237
Analog Liquid LLC - 27.78%
E-47/5., Okhla Industrial Area, Phase II, New Delhi,
South Delhi, DL 110020
575 Grand Street, E1507 New York, NY 10002
Grand Street Beverages LLC - 38.89%
Nao Spirits & Beverages Private Limited - 12.58%
65 SE Washington Street Portland, OR 97214
F
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N
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S
T
A
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T
S
International Distillers Uganda Limited - 50.03%
Italy
Tusker House, Ruaraka, PO Box 30161, 00100
Nairobi GPO
East African Maltings (Uganda) Limited(2) -
50.03%
United Kingdom
11 Lochside Place, Edinburgh, EH12 9HA
Lochside MWS Limited Partnership
McDowell & Co. (Scotland) Ltd(11) - 55.94%
Via Tortona 15, 20144, Milan
Niococktails S.R.L. - 20.00%
Japan
845-3 Kaminokawa, Hiyoshi-cho Hioki-shi,
Kagoshima
Komasa Kanosuke Distillery Company Ltd. -
12.50%
Netherlands
16 Great Marlborough St, London, W1F 7HS
Ceresstraat 1, 4811 CA Breda
Lakeside MWS Limited Liability Partnership
House Spirits Distillery LLC - 29.85%
735 10th Street, Fortuna, CA 95540
Redwood Spirits LLC - 20.00%
8601296, TT Administrative Services LLC, 888 SW
Fifth Avenue, Ste 1600, Portland, Oregon, 97204
Wilderton LLC - 27.78%
Diageo Annual Report 2022
Diageo Annual Report 2022
203
203
(2) Dormant company.
(3) Ownership held in class of A shares.
(4) Ownership held in class of B shares.
(5) Ownership held in class of A shares and B shares.
(6) Ownership held in preference shares.
(7) Ownership held in equity shares and preference
shares.
(8) 99.11% owned by Diageo plc.
(9) Companies controlled by the group based on
management's assessments.
(10) Diageo shares joint control over these entities under
shareholder's agreements, and Diageo's rights to profit,
assets and liabilities of the companies are dependent
on the performance of the group's brands rather the
effective equity ownership of the companies.
(11) Based on 55.94% equity investment in USL that
excludes 2.38% owned by the USL Benefit Trust.
(12) Operation is managed by Moët Hennessey.
(13) Operation is managed by Diageo.
936 SW 1ST AVE, #939, MIAMI, FL 33130
France
KOI Global LLC - 27.50%
Vietnam
94 Lo Duc Street, Pham Dinh Ho Ward, Hai Ba
Trung District, Ha Noi City
Hanoi Liquor and Beverage Joint Stock Company
(Halico) - 45.57%
JOINT VENTURES
Hong Kong
Room 06, 13A/F. South Tower, World Finance
Centre, Harbour City, 17 Canton Road, Tsim Sha
Tsui, Kowloon
Diageo International Spirits Company Limited(3) -
50.00%
United Kingdom
9 Wheatfield Road, EDINBURGH, EH11 2PX
Lothian Distillers Limited - 50.00%
The North British Distillery Company Limited -
50.00%
JOINT OPERATIONS(10)
China
804A, 488 Middle Yincheng Road, Shanghai, Pilot
Free Trade Zone
Moët Hennessy Diageo (China) Co Ltd(12) -
67.00%
Costa Rica
Heredia-Flores Llorente, Cervecería de Costa Rica,
Edificio Corporativo de FIFCO
HA&COM Bebidas del Mundo, SA - 50.00%
Dominican Republic
Independencia Street, No. 129, Santiago
Gist Dominicana S.A. - 60.25%
Salvador Sturla Street, Ensanche Naco, Santo
Domingo
Seagram Dominicana S.A. - 60.83%
Segunda (2da) Street, Los Platanitos, Santiago
105 Boulevard de la Mission Marchand,
Courbevoie, 92400
Moët Hennessy Diageo SAS - 0.05%
Hong Kong
Level 54, Hopewell Centre, 183 Queen's Road East,
Hong Kong
Moët Hennessy Diageo Hong Kong Limited(12) -
67.00%
Japan
13F Jimbocho Mitsui Building, 1-105
Kandajimbocho, Chiyoda-ku, Tokyo
Moët Hennessy Diageo K.K.(12) - 67.00%
Macau
Avenida Comercial de Macau, nos 251ª-301, AIA
Tower, Level 20, Macau
Moët Hennessy Diageo Macau Limited(12) -
67.00%
Malaysia
Unit 30-01, Level 30, Tower A, Vertical Business
Suite, Avenue 3, Bangsar South, No. 8, Jalan
Kerinchi, 59200 Kuala Lumpur
Moët Hennessy Diageo Malaysia Sdn Bhd.(12) -
67.00%
Netherlands
Molenwerf 12, 1014 BG, Amsterdam
Diageo-Moët Hennessy B.V.(5) - 67.00%
Singapore
83 Clemenceau Ave, 09-01 UE Square, Singapore
239920
Moët Hennessy Diageo Singapore Pte. Ltd(12) -
67.00%
Thailand
No. 944, Mitrtown Office Tower, 12th Floor, Rama
4 Road, Wangmai, Pathumwan, Bangkok, 10330
Diageo Moët Hennessy (Thailand) Limited(13) -
63.02%
Industria de Licores Internationales S.A. - 60.86%
Ukraine
Chervonoarmiyska Street, bld. 9/2, apt. 70, Kyiv
Seagram Ukraine Limited(2) - 60.90%
United Kingdom
Persimmon House, Fulford, York YO19 4FE
Trafalgar Metropolitan Homes Limited - 50.00%
(1) Directly owned by Diageo plc.
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204
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Moët Hennessy Diageo Hong Kong Limited(12) -
(10) Diageo shares joint control over these entities under
(2) Dormant company.
(3) Ownership held in class of A shares.
(4) Ownership held in class of B shares.
(5) Ownership held in class of A shares and B shares.
(6) Ownership held in preference shares.
(7) Ownership held in equity shares and preference
shares.
(8) 99.11% owned by Diageo plc.
(9) Companies controlled by the group based on
management's assessments.
shareholder's agreements, and Diageo's rights to profit,
assets and liabilities of the companies are dependent
on the performance of the group's brands rather the
effective equity ownership of the companies.
(11) Based on 55.94% equity investment in USL that
excludes 2.38% owned by the USL Benefit Trust.
(12) Operation is managed by Moët Hennessey.
(13) Operation is managed by Diageo.
Hong Kong
Hong Kong
67.00%
Japan
Macau
67.00%
Malaysia
936 SW 1ST AVE, #939, MIAMI, FL 33130
France
KOI Global LLC - 27.50%
Vietnam
94 Lo Duc Street, Pham Dinh Ho Ward, Hai Ba
Trung District, Ha Noi City
105 Boulevard de la Mission Marchand,
Courbevoie, 92400
Moët Hennessy Diageo SAS - 0.05%
Hanoi Liquor and Beverage Joint Stock Company
Level 54, Hopewell Centre, 183 Queen's Road East,
(Halico) - 45.57%
JOINT VENTURES
Hong Kong
Tsui, Kowloon
50.00%
United Kingdom
Room 06, 13A/F. South Tower, World Finance
Centre, Harbour City, 17 Canton Road, Tsim Sha
13F Jimbocho Mitsui Building, 1-105
Kandajimbocho, Chiyoda-ku, Tokyo
Diageo International Spirits Company Limited(3) -
Moët Hennessy Diageo K.K.(12) - 67.00%
9 Wheatfield Road, EDINBURGH, EH11 2PX
Tower, Level 20, Macau
Avenida Comercial de Macau, nos 251ª-301, AIA
Moët Hennessy Diageo Macau Limited(12) -
Lothian Distillers Limited - 50.00%
The North British Distillery Company Limited -
JOINT OPERATIONS(10)
50.00%
China
Unit 30-01, Level 30, Tower A, Vertical Business
Suite, Avenue 3, Bangsar South, No. 8, Jalan
Kerinchi, 59200 Kuala Lumpur
Moët Hennessy Diageo Malaysia Sdn Bhd.(12) -
804A, 488 Middle Yincheng Road, Shanghai, Pilot
Free Trade Zone
Moët Hennessy Diageo (China) Co Ltd(12) -
67.00%
Netherlands
67.00%
Costa Rica
Heredia-Flores Llorente, Cervecería de Costa Rica,
Edificio Corporativo de FIFCO
HA&COM Bebidas del Mundo, SA - 50.00%
Dominican Republic
Independencia Street, No. 129, Santiago
Gist Dominicana S.A. - 60.25%
Salvador Sturla Street, Ensanche Naco, Santo
Domingo
Seagram Dominicana S.A. - 60.83%
Singapore
239920
67.00%
Thailand
Segunda (2da) Street, Los Platanitos, Santiago
Industria de Licores Internationales S.A. - 60.86%
63.02%
Ukraine
Molenwerf 12, 1014 BG, Amsterdam
Diageo-Moët Hennessy B.V.(5) - 67.00%
83 Clemenceau Ave, 09-01 UE Square, Singapore
Moët Hennessy Diageo Singapore Pte. Ltd(12) -
No. 944, Mitrtown Office Tower, 12th Floor, Rama
4 Road, Wangmai, Pathumwan, Bangkok, 10330
Diageo Moët Hennessy (Thailand) Limited(13) -
Chervonoarmiyska Street, bld. 9/2, apt. 70, Kyiv
Seagram Ukraine Limited(2) - 60.90%
United Kingdom
Persimmon House, Fulford, York YO19 4FE
Trafalgar Metropolitan Homes Limited - 50.00%
(1) Directly owned by Diageo plc.
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.
Income statement data
Sales
Excise duties
Net sales
Cost of sales
Gross profit
Marketing
Other operating items
Operating profit
Non-operating items
Net interest and other finance charges
Share of after tax results of associates and joint ventures
Profit before taxation
Tax before exceptional items
Exceptional taxation
Profit for the year
Weighted average number of shares
Shares in issue excluding own shares
Dilutive potential ordinary shares
Per share data
Basic earnings per share
Diluted earnings per share
Dividend per share
Balance sheet data
Non-current assets
Current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Share capital
Share premium
Other reserves
Retained earnings
Equity attributable to equity shareholders of the parent company
Non-controlling interests
Total equity
Net borrowings
Year ended 30 June
2022
£ million
22,448
(6,996)
15,452
(5,973)
9,479
(2,721)
(2,349)
4,409
(17)
(422)
417
4,387
(1,080)
31
3,338
million
2,318
7
2021
£ million
19,153
(6,420)
12,733
(5,038)
7,695
(2,163)
(1,801)
3,731
14
(373)
334
3,706
(823)
(84)
2,799
million
2,337
8
2020
£ million
17,697
(5,945)
11,752
(4,654)
7,098
(1,841)
(3,120)
2,137
(23)
(353)
282
2,043
(743)
154
1,454
million
2,346
8
2,325
2,345
2,354
pence
140.2
139.7
pence
113.8
113.4
pence
60.1
59.9
2019
£ million
19,294
(6,427)
12,867
(4,866)
8,001
(2,042)
(1,917)
4,042
144
(263)
312
4,235
(859)
(39)
3,337
million
2,418
10
2,428
pence
130.7
130.1
2018
£ million
18,432
(6,269)
12,163
(4,634)
7,529
(1,882)
(1,956)
3,691
—
(260)
309
3,740
(799)
203
3,144
million
2,484
11
2,495
pence
121.7
121.1
76.18
72.55
69.88
68.57
65.30
2022
£ million
23,582
12,934
36,516
(8,442)
(18,560)
(27,002)
9,514
723
1,351
2,174
3,550
7,798
1,716
9,514
As at 30 June
2021
£ million
20,508
11,445
31,953
(7,142)
(16,380)
2020
£ million
21,837
11,471
33,308
(6,496)
(18,372)
(23,522)
(24,868)
8,431
741
1,351
1,621
3,184
6,897
1,534
8,431
8,440
742
1,351
2,272
2,407
6,772
1,668
8,440
(14,137)
(12,109)
(13,246)
2019
£ million
21,923
9,373
31,296
(7,003)
(14,137)
(21,140)
10,156
753
1,350
2,372
3,886
8,361
1,795
10,156
(11,277)
2018
£ million
21,024
8,691
29,715
(6,360)
(11,642)
(18,002)
11,713
780
1,349
2,133
5,686
9,948
1,765
11,713
(9,091)
F
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A
N
C
I
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L
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T
A
T
E
M
E
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T
S
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204
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205
2. Contractual obligations and other commitments
As at 30 June 2022
Long-term debt obligations
Interest obligations
Credit support obligations
Purchase obligations
Commitments for short-term leases and leases of low-value assets
Post employment benefits(1)
Provisions and other non-current payables
Lease obligations
Capital commitments
Other financial liabilities
Total
Less than
1 year
£ million
1,469
427
19
2,352
12
23
159
98
360
216
Payments due by period
1-3 years
£ million
3-5 years
£ million
2,842
626
—
792
1
19
183
127
39
—
2,738
560
—
427
—
9
178
77
—
—
More than
5 years
£ million
9,276
1,622
—
75
—
—
276
266
—
—
Total
£ million
16,325
3,235
19
3,646
13
51
796
568
399
216
5,135
4,629
3,989
11,515
25,268
(1)
For further information see note 14 to the consolidated financial statements.
Long-term debt obligations comprise the principal amount of borrowings (excluding foreign currency swaps) with an original maturity of greater than
one year. Interest obligations comprise interest payable on these borrowings and are calculated based on the fixed amounts payable and where
the interest rate is variable on an estimate of what the variable rates will be in the future. Credit support obligations represent liabilities to
counterparty banks in respect of cash received as collateral under credit support agreements. Purchase obligations include various long-term
purchase contracts entered into for the supply of raw materials, principally bulk whisk(e)y, cereals, cans and glass bottles. Contracts are used to
guarantee the supply of raw materials over the long term and to enable a more accurate prediction of costs of raw materials in the future. Post
employment benefits contractual obligations comprise committed deficit contributions but exclude future service cost contributions. For certain
provisions, discounted numbers are disclosed.
Corporate tax payable of £252 million and deferred tax liabilities of £2,319 million are not included in the table above, as the ultimate timing of
settlement cannot be reasonably estimated.
Management believe that it has sufficient funding for its working capital requirements.
3. Off-balance sheet arrangements
Neither Diageo plc nor any member of the Diageo group has any off-balance sheet financing arrangements that currently have or are reasonably
likely to have a material future effect on the group’s financial condition, changes in financial condition, results of operations, liquidity, capital
expenditure or capital resources.
Cautionary statement concerning forward-looking statements
This document contains ‘forward-looking’ statements. These statements
strikes or disputes; (xvii) Diageo’s ability to derive the expected benefits
from its business strategies, including in relation to expansion in
emerging markets, acquisitions and/or disposals, cost savings and
productivity initiatives or inventory forecasting; (xviii) fluctuations in
exchange rates and/or interest rates, which may impact the value of
transactions and assets denominated in other currencies, increase
Diageo’s financing costs or otherwise adversely affect Diageo’s financial
results; (xix) a tightening of global financial conditions, including an
extended period of constraint in the capital markets which Diageo may
access; (xx) movements in the value of the assets and liabilities related
to Diageo’s pension plans; (xxi) Diageo’s ability to renew supply,
distribution, manufacturing or licence agreements (or related rights) and
licences on favourable terms, or at all, when they expire; or (xxii) any
failure by Diageo to protect its intellectual property rights.
All oral and written forward-looking statements made on or after the
date of this document and attributable to Diageo are expressly qualified
in their entirety by the cautionary statements contained or referred to in
this section. Further details of potential risks and uncertainties affecting
Diageo are described in our filings with the London Stock Exchange and
the US Securities and Exchange Commission (SEC), including in our
Annual Report on Form 20-F for the year ended 30 June 2022.
Any forward-looking statements made by or on behalf of Diageo
speak only as of the date they are made. Diageo expressly disclaims
any obligation or undertaking to publicly update or revise these forward-
looking statements other than as required by applicable law. The reader
should, however, consult any additional disclosures that Diageo may
make in any documents which it publishes and/or files with the SEC.
All readers, wherever located, should take note of these disclosures.
This document includes names of Diageo’s products, which constitute
trademarks or trade names which Diageo owns, or which others own
and license to Diageo for use. All rights reserved. © Diageo plc 2022.
The information in this document does not constitute an offer to sell
or an invitation to buy shares in Diageo plc or an invitation or
inducement to engage in any other investment activities.
This document may include information about Diageo’s target debt
rating. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by
the assigning rating organisation. Each rating should be evaluated
independently of any other rating.
Past performance cannot be relied upon as a guide to future
performance.
can be identified by the fact that they do not relate only to historical or
current facts and may generally, but not always, be identified by the use
of words such as “’will”, “anticipates”, “should”, “could”, “would”,
“targets”, “aims”, “may”, “expects”, “intends” or similar expressions
statements. In this document, such statements include those that express
forecasts, expectations, plans, outlook, objectives and projections with
respect to future matters, including information related to Diageo’s fiscal
23 outlook, Diageo’s medium-term guidance for fiscal 23 to fiscal 25,
Diageo’s supply chain agility programme, future Total Beverage Alcohol
market share ambitions and any other statements relating to Diageo’s
performance for the year ending 30 June 2023 or thereafter.
Forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the
future. There is a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by
these forward-looking statements, including factors that are outside
Diageo's control, which include (but are not limited to):
(i) economic, political, social or other developments in countries and
markets in which Diageo operates (including as a result of the Covid-19
pandemic, geopolitical instability and/or inflationary pressures), which
may contribute to a reduction in demand for Diageo’s products, adverse
impacts on Diageo’s customer, supplier and/or financial counterparties,
or the imposition of import, investment or currency restrictions (including
the potential impact of any global, regional or local trade wars or any
tariffs, duties or other restrictions or barriers imposed on the import or
export of goods between territories as well as the United Kingdom’s
departure from the European Union); (ii) the impact of the Covid-19
pandemic, or any other global or regional public health threats, on
Diageo’s business, financial condition, cash flows and results of
operation; (iii) the elevated geopolitical instability as a result of Russia's
invasion of Ukraine; (iv) the effects of climate change, or legal,
regulatory or market measures intended to address climate change, on
Diageo’s business or operations, including on the cost and supply of
water; (v) changes in consumer preferences and tastes, including as a
result of inflationary pressures, disruptive market forces, changes in
demographics, evolving social trends, changes in travel, holiday or
leisure activity patterns, weather conditions, health concerns, pandemics
and/or a downturn in economic conditions; (vi) changes in the domestic
and international tax environment, leading to uncertainty around the
application of existing and new tax laws and unexpected tax exposures;
(vii) changes in the cost of production, including as a result of increases
in the cost of commodities and due to supply chain disruptions, labour
and/or energy or as a result of inflationary pressures; (viii) any litigation
or other similar proceedings (including with tax, customs, competition,
environmental, anti-corruption or other regulatory authorities), including
litigation directed at the beverage alcohol industry generally or at
Diageo in particular; (ix) legal and regulatory developments, including
changes in regulations relating to production, distribution, importation,
marketing, advertising, sales, pricing, labelling, packaging, product
liability, antitrust, labour, compliance and control systems, environmental
issues and/or data privacy; (x) the consequences of any failure of
internal controls, including those affecting compliance with existing or
new accounting and/or disclosure requirements; (xi) the consequences
of any failure by Diageo or its associates to comply with anti-corruption,
sanctions, trade restrictions or similar laws and regulations, or any failure
of Diageo’s related internal policies and procedures to comply with
applicable law or regulation; (xii) cyber-attacks or any other disruptions
to core business operations including manufacturing and supply,
business service centres and/or information systems; (xiii) contamination,
counterfeiting or other circumstances which could harm the level of
customer support for Diageo’s brands and adversely impact its sales;
(xiv) Diageo’s ability to maintain its brand image and corporate
reputation or to adapt to a changing media environment; (xv) increased
competitive product and pricing pressures, including as a result of
actions by increasingly consolidated competitors or increased
competition from regional and local companies, that could negatively
impact Diageo’s market share, distribution network, costs and/or
pricing; (xvi) increased costs for, or shortages of, talent, as well as labour
206
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Diageo Annual Report 2022
207
As at 30 June 2022
Long-term debt obligations
Interest obligations
Credit support obligations
Purchase obligations
Lease obligations
Capital commitments
Other financial liabilities
Total
Commitments for short-term leases and leases of low-value assets
Post employment benefits(1)
Provisions and other non-current payables
Less than
1 year
£ million
1,469
427
19
2,352
12
23
159
98
360
216
Payments due by period
1-3 years
£ million
3-5 years
£ million
2,842
626
—
792
1
19
183
127
39
—
2,738
560
427
—
—
9
178
77
—
—
More than
5 years
£ million
9,276
1,622
—
75
—
—
276
266
—
—
Total
£ million
16,325
3,235
3,646
19
13
51
796
568
399
216
5,135
4,629
3,989
11,515
25,268
(1)
For further information see note 14 to the consolidated financial statements.
Long-term debt obligations comprise the principal amount of borrowings (excluding foreign currency swaps) with an original maturity of greater than
one year. Interest obligations comprise interest payable on these borrowings and are calculated based on the fixed amounts payable and where
the interest rate is variable on an estimate of what the variable rates will be in the future. Credit support obligations represent liabilities to
counterparty banks in respect of cash received as collateral under credit support agreements. Purchase obligations include various long-term
purchase contracts entered into for the supply of raw materials, principally bulk whisk(e)y, cereals, cans and glass bottles. Contracts are used to
guarantee the supply of raw materials over the long term and to enable a more accurate prediction of costs of raw materials in the future. Post
employment benefits contractual obligations comprise committed deficit contributions but exclude future service cost contributions. For certain
Corporate tax payable of £252 million and deferred tax liabilities of £2,319 million are not included in the table above, as the ultimate timing of
Management believe that it has sufficient funding for its working capital requirements.
Neither Diageo plc nor any member of the Diageo group has any off-balance sheet financing arrangements that currently have or are reasonably
likely to have a material future effect on the group’s financial condition, changes in financial condition, results of operations, liquidity, capital
provisions, discounted numbers are disclosed.
settlement cannot be reasonably estimated.
3. Off-balance sheet arrangements
expenditure or capital resources.
2. Contractual obligations and other commitments
Cautionary statement concerning forward-looking statements
Cautionary statement concerning forward-looking statements
strikes or disputes; (xvii) Diageo’s ability to derive the expected benefits
strikes or disputes; (xvii) Diageo’s ability to derive the expected benefits
from its business strategies, including in relation to expansion in
from its business strategies, including in relation to expansion in
emerging markets, acquisitions and/or disposals, cost savings and
emerging markets, acquisitions and/or disposals, cost savings and
productivity initiatives or inventory forecasting; (xviii) fluctuations in
productivity initiatives or inventory forecasting; (xviii) fluctuations in
exchange rates and/or interest rates, which may impact the value of
exchange rates and/or interest rates, which may impact the value of
transactions and assets denominated in other currencies, increase
transactions and assets denominated in other currencies, increase
Diageo’s financing costs or otherwise adversely affect Diageo’s financial
Diageo’s financing costs or otherwise adversely affect Diageo’s financial
results; (xix) a tightening of global financial conditions, including an
results; (xix) a tightening of global financial conditions, including an
extended period of constraint in the capital markets which Diageo may
extended period of constraint in the capital markets which Diageo may
access; (xx) movements in the value of the assets and liabilities related
access; (xx) movements in the value of the assets and liabilities related
to Diageo’s pension plans; (xxi) Diageo’s ability to renew supply,
to Diageo’s pension plans; (xxi) Diageo’s ability to renew supply,
distribution, manufacturing or licence agreements (or related rights) and
distribution, manufacturing or licence agreements (or related rights) and
licences on favourable terms, or at all, when they expire; or (xxii) any
licences on favourable terms, or at all, when they expire; or (xxii) any
failure by Diageo to protect its intellectual property rights.
failure by Diageo to protect its intellectual property rights.
All oral and written forward-looking statements made on or after the
All oral and written forward-looking statements made on or after the
date of this document and attributable to Diageo are expressly qualified
date of this document and attributable to Diageo are expressly qualified
in their entirety by the cautionary statements contained or referred to in
in their entirety by the cautionary statements contained or referred to in
this section. Further details of potential risks and uncertainties affecting
this section. Further details of potential risks and uncertainties affecting
Diageo are described in our filings with the London Stock Exchange and
Diageo are described in our filings with the London Stock Exchange and
the US Securities and Exchange Commission (SEC), including in our
the US Securities and Exchange Commission (SEC), including in our
Annual Report on Form 20-F for the year ended 30 June 2022.
Annual Report on Form 20-F for the year ended 30 June 2022.
Any forward-looking statements made by or on behalf of Diageo
Any forward-looking statements made by or on behalf of Diageo
speak only as of the date they are made. Diageo expressly disclaims
speak only as of the date they are made. Diageo expressly disclaims
any obligation or undertaking to publicly update or revise these forward-
any obligation or undertaking to publicly update or revise these forward-
looking statements other than as required by applicable law. The reader
looking statements other than as required by applicable law. The reader
should, however, consult any additional disclosures that Diageo may
should, however, consult any additional disclosures that Diageo may
make in any documents which it publishes and/or files with the SEC.
make in any documents which it publishes and/or files with the SEC.
All readers, wherever located, should take note of these disclosures.
All readers, wherever located, should take note of these disclosures.
This document includes names of Diageo’s products, which constitute
This document includes names of Diageo’s products, which constitute
trademarks or trade names which Diageo owns, or which others own
trademarks or trade names which Diageo owns, or which others own
and license to Diageo for use. All rights reserved. © Diageo plc 2022.
and license to Diageo for use. All rights reserved. © Diageo plc 2022.
The information in this document does not constitute an offer to sell
The information in this document does not constitute an offer to sell
or an invitation to buy shares in Diageo plc or an invitation or
or an invitation to buy shares in Diageo plc or an invitation or
inducement to engage in any other investment activities.
inducement to engage in any other investment activities.
This document may include information about Diageo’s target debt
This document may include information about Diageo’s target debt
rating. A security rating is not a recommendation to buy, sell or hold
rating. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by
securities and may be subject to revision or withdrawal at any time by
the assigning rating organisation. Each rating should be evaluated
the assigning rating organisation. Each rating should be evaluated
independently of any other rating.
independently of any other rating.
Past performance cannot be relied upon as a guide to future
Past performance cannot be relied upon as a guide to future
performance.
performance.
F
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This document contains ‘forward-looking’ statements. These statements
This document contains ‘forward-looking’ statements. These statements
can be identified by the fact that they do not relate only to historical or
can be identified by the fact that they do not relate only to historical or
current facts and may generally, but not always, be identified by the use
current facts and may generally, but not always, be identified by the use
of words such as “’will”, “anticipates”, “should”, “could”, “would”,
of words such as “’will”, “anticipates”, “should”, “could”, “would”,
“targets”, “aims”, “may”, “expects”, “intends” or similar expressions
“targets”, “aims”, “may”, “expects”, “intends” or similar expressions
statements. In this document, such statements include those that express
statements. In this document, such statements include those that express
forecasts, expectations, plans, outlook, objectives and projections with
forecasts, expectations, plans, outlook, objectives and projections with
respect to future matters, including information related to Diageo’s fiscal
respect to future matters, including information related to Diageo’s fiscal
23 outlook, Diageo’s medium-term guidance for fiscal 23 to fiscal 25,
23 outlook, Diageo’s medium-term guidance for fiscal 23 to fiscal 25,
Diageo’s supply chain agility programme, future Total Beverage Alcohol
Diageo’s supply chain agility programme, future Total Beverage Alcohol
market share ambitions and any other statements relating to Diageo’s
market share ambitions and any other statements relating to Diageo’s
performance for the year ending 30 June 2023 or thereafter.
performance for the year ending 30 June 2023 or thereafter.
Forward-looking statements involve risk and uncertainty because
Forward-looking statements involve risk and uncertainty because
they relate to events and depend on circumstances that will occur in the
they relate to events and depend on circumstances that will occur in the
future. There is a number of factors that could cause actual results and
future. There is a number of factors that could cause actual results and
developments to differ materially from those expressed or implied by
developments to differ materially from those expressed or implied by
these forward-looking statements, including factors that are outside
these forward-looking statements, including factors that are outside
Diageo's control, which include (but are not limited to):
Diageo's control, which include (but are not limited to):
(i) economic, political, social or other developments in countries and
(i) economic, political, social or other developments in countries and
markets in which Diageo operates (including as a result of the Covid-19
markets in which Diageo operates (including as a result of the Covid-19
pandemic, geopolitical instability and/or inflationary pressures), which
pandemic, geopolitical instability and/or inflationary pressures), which
may contribute to a reduction in demand for Diageo’s products, adverse
may contribute to a reduction in demand for Diageo’s products, adverse
impacts on Diageo’s customer, supplier and/or financial counterparties,
impacts on Diageo’s customer, supplier and/or financial counterparties,
or the imposition of import, investment or currency restrictions (including
or the imposition of import, investment or currency restrictions (including
the potential impact of any global, regional or local trade wars or any
the potential impact of any global, regional or local trade wars or any
tariffs, duties or other restrictions or barriers imposed on the import or
tariffs, duties or other restrictions or barriers imposed on the import or
export of goods between territories as well as the United Kingdom’s
export of goods between territories as well as the United Kingdom’s
departure from the European Union); (ii) the impact of the Covid-19
departure from the European Union); (ii) the impact of the Covid-19
pandemic, or any other global or regional public health threats, on
pandemic, or any other global or regional public health threats, on
Diageo’s business, financial condition, cash flows and results of
Diageo’s business, financial condition, cash flows and results of
operation; (iii) the elevated geopolitical instability as a result of Russia's
operation; (iii) the elevated geopolitical instability as a result of Russia's
invasion of Ukraine; (iv) the effects of climate change, or legal,
invasion of Ukraine; (iv) the effects of climate change, or legal,
regulatory or market measures intended to address climate change, on
regulatory or market measures intended to address climate change, on
Diageo’s business or operations, including on the cost and supply of
Diageo’s business or operations, including on the cost and supply of
water; (v) changes in consumer preferences and tastes, including as a
water; (v) changes in consumer preferences and tastes, including as a
result of inflationary pressures, disruptive market forces, changes in
result of inflationary pressures, disruptive market forces, changes in
demographics, evolving social trends, changes in travel, holiday or
demographics, evolving social trends, changes in travel, holiday or
leisure activity patterns, weather conditions, health concerns, pandemics
leisure activity patterns, weather conditions, health concerns, pandemics
and/or a downturn in economic conditions; (vi) changes in the domestic
and/or a downturn in economic conditions; (vi) changes in the domestic
and international tax environment, leading to uncertainty around the
and international tax environment, leading to uncertainty around the
application of existing and new tax laws and unexpected tax exposures;
application of existing and new tax laws and unexpected tax exposures;
(vii) changes in the cost of production, including as a result of increases
(vii) changes in the cost of production, including as a result of increases
in the cost of commodities and due to supply chain disruptions, labour
in the cost of commodities and due to supply chain disruptions, labour
and/or energy or as a result of inflationary pressures; (viii) any litigation
and/or energy or as a result of inflationary pressures; (viii) any litigation
or other similar proceedings (including with tax, customs, competition,
or other similar proceedings (including with tax, customs, competition,
environmental, anti-corruption or other regulatory authorities), including
environmental, anti-corruption or other regulatory authorities), including
litigation directed at the beverage alcohol industry generally or at
litigation directed at the beverage alcohol industry generally or at
Diageo in particular; (ix) legal and regulatory developments, including
Diageo in particular; (ix) legal and regulatory developments, including
changes in regulations relating to production, distribution, importation,
changes in regulations relating to production, distribution, importation,
marketing, advertising, sales, pricing, labelling, packaging, product
marketing, advertising, sales, pricing, labelling, packaging, product
liability, antitrust, labour, compliance and control systems, environmental
liability, antitrust, labour, compliance and control systems, environmental
issues and/or data privacy; (x) the consequences of any failure of
issues and/or data privacy; (x) the consequences of any failure of
internal controls, including those affecting compliance with existing or
internal controls, including those affecting compliance with existing or
new accounting and/or disclosure requirements; (xi) the consequences
new accounting and/or disclosure requirements; (xi) the consequences
of any failure by Diageo or its associates to comply with anti-corruption,
of any failure by Diageo or its associates to comply with anti-corruption,
sanctions, trade restrictions or similar laws and regulations, or any failure
sanctions, trade restrictions or similar laws and regulations, or any failure
of Diageo’s related internal policies and procedures to comply with
of Diageo’s related internal policies and procedures to comply with
applicable law or regulation; (xii) cyber-attacks or any other disruptions
applicable law or regulation; (xii) cyber-attacks or any other disruptions
to core business operations including manufacturing and supply,
to core business operations including manufacturing and supply,
business service centres and/or information systems; (xiii) contamination,
business service centres and/or information systems; (xiii) contamination,
counterfeiting or other circumstances which could harm the level of
counterfeiting or other circumstances which could harm the level of
customer support for Diageo’s brands and adversely impact its sales;
customer support for Diageo’s brands and adversely impact its sales;
(xiv) Diageo’s ability to maintain its brand image and corporate
(xiv) Diageo’s ability to maintain its brand image and corporate
reputation or to adapt to a changing media environment; (xv) increased
reputation or to adapt to a changing media environment; (xv) increased
competitive product and pricing pressures, including as a result of
competitive product and pricing pressures, including as a result of
actions by increasingly consolidated competitors or increased
actions by increasingly consolidated competitors or increased
competition from regional and local companies, that could negatively
competition from regional and local companies, that could negatively
impact Diageo’s market share, distribution network, costs and/or
impact Diageo’s market share, distribution network, costs and/or
pricing; (xvi) increased costs for, or shortages of, talent, as well as labour
pricing; (xvi) increased costs for, or shortages of, talent, as well as labour
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207
Additional information
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.
The major facilities with locations, principal activities, products
represented in the below table:
Location
Principal activities
Products
distilling, bottling,
warehousing, RTD canning,
Filling/Disgorging,
cooperage, visitor centre
liquid production, blending,
brewing, bottling, packaging,
warehousing
beer, scotch whisky, gin,
vodka, rum, RTD
beer and Baileys
United Kingdom
Ireland
Italy
Mexico
India
distilling, bottling,
warehousing
distilling, bottling,
warehousing
distilling, bottling,
warehousing, trading
United States,
Canada, US Virgin
Islands
distilling, bottling,
warehousing, shipping, RTD
canning, visitor centre
vodka, rum, RTD, non-
alcoholic
tequila
rum, vodka, whisky,
scotch, brandy, gin
vodka, gin, tequila, rum,
Canadian whisky,
American whiskey,
progressive adult
beverages, RTD
beer and spirits
East Africa
(Uganda, Kenya,
Tanzania)
Nigeria
South Africa
Africa Regional
Markets
(Cameroon,
Ghana, Seychelles)
Turkey
Brazil
Australia
distilling, brewing, bottling,
packaging, warehousing
distilling, brewing, bottling,
packaging, warehousing
beer and spirits
distilling, bottling,
warehousing
spirits
distilling, brewing, bottling,
warehousing
beer and spirits
distilling, bottling,
warehousing
distilling, bottling, RTD
canning, warehousing
distilling, bottling,
warehousing, RTD canning &
bottling
raki, vodka, gin, liqueur,
wine
cachaça, vodka, RTD
rum, vodka, gin, RTD
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
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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 ‘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 expected to open in 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
for
operates using 100% renewable electricity, zero
production and virtual metering technology.
fossil
fuels
In China, we broke ground with a $75 million investment to the
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
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 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
vodka, rum, RTD, non-
malt whisky and be carbon-neutral on opening.
Location
Principal activities
Products
United Kingdom
distilling, bottling,
beer, scotch whisky, gin,
the summer of 2023.
Additional information
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.
The major facilities with locations, principal activities, products
represented in the below table:
warehousing, RTD canning,
vodka, rum, RTD
Filling/Disgorging,
cooperage, visitor centre
Ireland
liquid production, blending,
beer and Baileys
brewing, bottling, packaging,
warehousing
distilling, bottling,
warehousing
distilling, bottling,
warehousing
alcoholic
tequila
Italy
Mexico
India
distilling, bottling,
warehousing, trading
rum, vodka, whisky,
scotch, brandy, gin
United States,
distilling, bottling,
vodka, gin, tequila, rum,
Canada, US Virgin
warehousing, shipping, RTD
Canadian whisky,
Islands
canning, visitor centre
American whiskey,
progressive adult
beverages, RTD
East Africa
distilling, brewing, bottling,
beer and spirits
(Uganda, Kenya,
packaging, warehousing
Tanzania)
Nigeria
distilling, brewing, bottling,
beer and spirits
packaging, warehousing
South Africa
distilling, bottling,
spirits
Africa Regional
distilling, brewing, bottling,
beer and spirits
warehousing
warehousing
Markets
(Cameroon,
Ghana, Seychelles)
Turkey
Brazil
distilling, bottling,
warehousing
distilling, bottling, RTD
canning, warehousing
warehousing, RTD canning &
bottling
Australia
distilling, bottling,
rum, vodka, gin, RTD
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
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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 ‘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 expected to open in summer 2022. The
iconic lost distillery of Port Ellen is expected to be back in production in
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.
In China, we broke ground with a $75 million investment to the
Eryuan Malt Whisky Distillery. It will produce our first China-origin, single
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
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 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
raki, vodka, gin, liqueur,
wine
cachaça, vodka, RTD
ended 30 June 2022.
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
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.
Flavoured Malt Beverages (FMB) are made from original base
containing malt, but then stripped of malt character and flavoured. This
product segment is implemented mainly in the US, Canada and the
Caribbean.
Ready to drink (RTD)
Diageo produces a range of ready to drink products mainly in the
United Kingdom, Italy, across Africa, Australia, the United States and
Canada. Demand for these products has increased significantly
particularly in United States and Canada with volumes increased 15%.
We are supporting this increase in demand through third-party
production and are also investing in a new production facility in
Plainfield, which opened in March 2022.
Raw materials and supply agreements
The group has several long-term contracts in place for the purchase of
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
strong consumer demand, change in consumer habits (for example, the
increase in e-commerce) continued impact of Covid-19 and emerging
impact of the conflict in Ukraine are the key drivers of constraints that
we are managing through.
Like other 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 uncertainty and constraints
in our supply chain through expansion of our supplier base and agility
in our logistics networks.
Cream is the principal raw material used in the production of Irish
cream liqueur and is sourced from Ireland. Grapes and aniseed are
used in the production of raki and are sourced from suppliers in Turkey.
Agave is a key raw material used in the production of 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 variety of multinational and local suppliers. The
largest suppliers are Ardagh Packaging in the United Kingdom and
Owens-Illinois in the United States.
Competition
Diageo’s brands compete primarily on the basis of 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 regional
and local basis (with the profile varying between regions) with several
competitors, including AB InBev, Molson Coors, Heineken, Constellation
Brands and Carlsberg.
Research and development
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 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 US Treasury
Department oversees the US beverage alcohol industry, including
through regulating and collecting taxes on the production of 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 Diageo's US operations, including production,
importation, distribution, marketing, promotion, sales, pricing, labelling,
packaging and advertising.
Spirits and beer are subject to national import and excise duties in
many markets around the world. Most countries impose excise duties on
beverage alcohol products, although the form of such taxation varies
significantly from a simple application to units of alcohol by volume, to
advanced systems based on the imported or wholesale value of the
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 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 import into a certain
jurisdiction of spirits and beer, and to restrictions on the advertising style,
media and content. In a number of countries, television is a prohibited
medium for the 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
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social media in connection with alcohol sales. Any further prohibitions
imposed on advertising or marketing, particularly within Diageo’s most
significant markets, could have an adverse impact on beverage alcohol
sales.
Labelling of beverage alcohol products is also regulated in many
markets, varying from the required inclusion of health warning labels to
manufacturer or importer identification, alcohol strength and other
consumer information. As well as producer, importer or bottler
identification, specific warning statements related to the risks of drinking
beverage alcohol products are required to be included on all beverage
alcohol products sold in the US, in certain countries within the EU, and in
a number of other jurisdictions in which Diageo operates.
Spirits and beer are 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 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 Western world, including in the majority of US states, in the
UK and in much of the 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 may consider raising the
legal drinking age, further limiting the number, type or opening hours of
retail outlets and/or expanding retail licensing requirements.
In response to the Covid-19 pandemic, many governments across
the world implemented restrictions on where and how people could
gather, in an effort to curb transmission of the 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 pandemic but, in many of
the markets in which Diageo operates, they have resulted in, amongst
other things, the temporary closure of or restricted opening hours for on-
trade outlets.
Regulatory decisions and changes in the legal and regulatory
environment could also increase Diageo’s costs and liabilities and/or
impact on its business 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 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 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.
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For UK tax purposes, this section applies only to persons who are
the absolute beneficial owners of 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 Kingdom of Great Britain and Northern Ireland and the
Government of the United States of America for the Avoidance of
Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income and Capital Gains (the Treaty). These laws are subject
to change, possibly on a retroactive basis.
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 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 Rate 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
2022/2023 tax year):
• at the rate of 8.75%, to the extent that the relevant dividend income
falls below the threshold for the higher rate of income tax;
social media in connection with alcohol sales. Any further prohibitions
For UK tax purposes, this section applies only to persons who are
imposed on advertising or marketing, particularly within Diageo’s most
the absolute beneficial owners of ordinary shares or ADSs and who hold
significant markets, could have an adverse impact on beverage alcohol
their ordinary shares or ADSs as investments. It assumes that holders of
sales.
ADSs will be treated as holders of the underlying ordinary shares. In
Labelling of beverage alcohol products is also regulated in many
addition to those persons mentioned above, this section does not apply
markets, varying from the required inclusion of health warning labels to
to holders that are banks, regulated investment companies, other
manufacturer or importer identification, alcohol strength and other
financial institutions, or to persons who have or are deemed to have
consumer information. As well as producer, importer or bottler
acquired their ordinary shares or ADSs in the course of an employment
identification, specific warning statements related to the risks of drinking
or trade. This summary does not apply to persons who are treated as
beverage alcohol products are required to be included on all beverage
non-domiciled and resident in the United Kingdom for the purposes of
alcohol products sold in the US, in certain countries within the EU, and in
UK tax law.
a number of other jurisdictions in which Diageo operates.
This section is based on the Internal Revenue Code of 1986, as
Spirits and beer are also regulated in distribution. In many countries,
amended, its legislative history, existing and proposed regulations,
alcohol may only be sold through licensed outlets, both on- and off-
published rulings and court decisions, the laws of the United Kingdom
trade, varying from government- or state-operated monopoly outlets (for
and the practice of Her Majesty’s Revenue and Customs, all as currently
example, in the off-trade channel in Norway, certain Canadian
in effect, as well as on the Convention Between the Government of the
provinces, and certain US states) to the system of licensed on-trade
United Kingdom of Great Britain and Northern Ireland and the
outlets (for example, licensed bars and restaurants) which prevails in
Government of the United States of America for the Avoidance of
much of the Western world, including in the majority of US states, in the
Double Taxation and the Prevention of Fiscal Evasion with Respect to
UK and in much of the EU. In a number of states in the US, wholesalers
Taxes on Income and Capital Gains (the Treaty). These laws are subject
of alcoholic beverages must publish price lists periodically and/or must
to change, possibly on a retroactive basis.
file price changes in some instances up to three months before they
In addition, this section is based in part upon the representations of
become effective. In a response to public health concerns, some
the Depositary and the assumption that each obligation in the Deposit
governments have imposed or are considering imposing minimum
Agreement and any related agreement will be performed in
pricing on beverage alcohol products and may consider raising the
accordance with its terms. In general, and taking into account this
legal drinking age, further limiting the number, type or opening hours of
assumption, for US federal income tax purposes and for the purposes of
retail outlets and/or expanding retail licensing requirements.
the Treaty, holders of ADRs evidencing ADSs should be treated as the
In response to the Covid-19 pandemic, many governments across
owner of the shares represented by those ADSs. Exchanges of shares for
the world implemented restrictions on where and how people could
ADRs, and ADRs for shares, generally will not be subject to US federal
gather, in an effort to curb transmission of the virus. The extent of these
income tax or to UK tax on profits or gains.
restrictions has varied from country to country (and, in the US, from state
A US holder is a beneficial owner of ordinary shares or ADSs that is
to state) and throughout the duration of the pandemic but, in many of
for US federal income tax purposes:
the markets in which Diageo operates, they have resulted in, amongst
• a citizen or resident for tax purposes of the United States and who is
other things, the temporary closure of or restricted opening hours for on-
not and has at no point been resident in the United Kingdom;
trade outlets.
• a US domestic corporation;
Regulatory decisions and changes in the legal and regulatory
• an estate whose income is subject to US federal income tax
environment could also increase Diageo’s costs and liabilities and/or
regardless of its source; or
impact on its business 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 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
• a US holder (as defined below) whose functional currency is not US
for tax purposes; or
dollar.
If an entity or arrangement treated as a partnership for US federal
income tax purposes holds ordinary shares or ADSs, the US federal
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.
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• 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
paying a dividend.
The company will not be required to withhold tax at source when
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 Rate 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
2022/2023 tax year):
• at the rate of 8.75%, to the extent that the relevant dividend income
falls below the threshold for the higher rate of income tax;
income tax treatment of a partner will generally depend on the status of
be subject to income tax at the following special rates (as at the
• at the rate of 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 39.35%, to the extent that the relevant dividend income
falls above the threshold for the additional rate of income tax.
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.
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.
US taxation
Under the US federal income tax laws, and subject to the passive
foreign investment company (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 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, 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 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
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.
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 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
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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.
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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.
Additional information for shareholders
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.
External limited assurance of selected ESG performance data
We engaged PricewaterhouseCoopers LLP to perform an independent
limited assurance engagement, reporting to the Board of Directors of
Diageo plc, over selected environmental, social and governance (ESG)
performance data marked with the symbol Δ within the Strategic Report
of the Annual Report, and the ESG Reporting Index.
PricewaterhouseCoopers LLP’s engagement was performed in
accordance with International Standard on Assurance Engagements
3000 (Revised) ‘Assurance Engagements other than Audits and Reviews
of Historical Financial Information’ and, in respect of the greenhouse
gas emissions, in accordance with International Standard on Assurance
Engagements 3410 ‘Assurance engagements on greenhouse gas
statements’, issued by the International Auditing and Assurance
Standards Board. PricewaterhouseCoopers LLP’s full assurance opinion
is available in the ESG Reporting Index to the Annual Report at https://
www.diageo.com/en/society-2030/doing-business-the-right-way/our-
governance-and-reporting/our-reporting. A summary of the work they
performed is included in their assurance opinion. It is important to read
the selected ESG performance data contained within this report in the
context of PricewaterhouseCoopers LLP’s limited assurance opinion and
our reporting methodologies. Our reporting methodologies are included
in the ESG Reporting Index, available at https://www.diageo.com/en/
society-2030/doing-business-the-right-way/our-governance-and-
reporting/our-reporting.
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 on boiler room scams can be found on
the Financial Conduct Authority’s website (https://www.fca.org.uk/
scamsmart/share-bond-boiler-room-scams) but in short, if in doubt, 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.
Printed on Vision Superior, an FSC® certified mixed sources paper.
Printed by Paragon Customer Communications, an FSC®
and ISO 140001 certified company.
Designed and produced by Black Sun Plc
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
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 on pages 210-211 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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Celebrating life,
every day, everywhere
Diageo plc
16 Great Marlborough Street
London
W1F 7HS
United Kingdom
T: +44 (0) 20 7947 9100
www.diageo.com
Registered in England
No. 23307
© 2022 Diageo plc. All rights reserved. All brands mentioned in this
Annual Report are trademarks and are registered and/or otherwise
protected in accordance with applicable law.
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