213800ZVIELEA55JMJ32-2022-06-30-T01

A global leader in beverage alcohol with an outstanding

collection of brands across spirits and beer


Financial performance
Volume (equivalent units)			Net sales1			Operating profit
2022	EU263.0m		2022	£15,452m		2022	£4,409m
2021	EU238.4m		2021	£12,733m		2021	£3,731m
Reported movement	↑	10.3%	Reported movement	↑	21.4%	Reported movement	↑	18.2%
Organic movement	↑	10.3%	Organic movement	↑	21.4%	Organic movement	↑	26.3%

Net cash from operating activities			Earnings per share (eps)			Total recommended dividend per share3
2022	£3,935m		2022	140.2p		2022	76.18p
2021	£3,654m		2021	113.8p		2021	72.55p
2022 increase of	£281m		Reported movement	↑	23.2%		↑	5%
2022 free cash flow2	£2,783m		Eps before exceptional items movement2	↑	29.3%


2021 Non-financial performance
Positive drinking		Inclusion and diversity		Water efficiency4		Carbon emissions4 (1,000 tonnes CO2e)
2022	607,374Δ	2022	44%Δ	2022	4.13l/lΔ	2022	447Δ
2021	210,443	2021	42%	2021	4.29l/l	2021	472
Number of people educated on the dangers of underage drinking through a Diageo supported education programme		Percentage of female leaders globally		Ratio of the amount of water required to produce one litre of packaged product		Absolute volume of Scope 1 and 2 carbon emissions, in 1,000 tonnes
		2022	41%Δ
		2021	37%	of packaged product
		Percentage of ethnically diverse leaders globally

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 Includes recommended final dividend of 46.82p

4 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

visitors2 to Johnnie Walker Princes Street, 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.

2 out of 4

We own Johnnie Walker and

Smirnoff, two of the world’s four

largest international spirits brands

by retail sales value3

1. IWSR, 2021

2. Diageo internal data – 6 September 2021 to 30 June 2022

3. IWSR, 2021


2	Diageo Annual Report 2022

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.

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

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.

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

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.


4	Diageo Annual Report 2022

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.

OUR STRATEGIC OUTCOMES

[EG] Efficient growth

[CT] Credibility and trust

[CVC] Consistent value creation

[EP] Engaged people

Read more on page 19



Aligned to stakeholders’ interests	Measuring our progress
OUR STAKEHOLDERS	OUR KEY PERFORMANCE INDICATORS
Our people	[EG] [CVC] Organic net sales growth
Consumers	[EG] [CVC] Organic operating profit growth
Customers	[EG] [CVC] Earnings per share before exceptional items
Suppliers	[EG] [CVC] Free cash flow
Communities	[CVC] Return on average invested capital
Investors	[CVC] Total shareholder return
Governments and regulators	[CVC] [CT] [EP] Percentage of ethnically diverse leaders globally
	[CVC] [CT] [EP] Percentage of female leaders globally
	[CT] [EP] Reach and impact of positive drinking programmes
	[CT] [EP] Health and safety
	[CT] [CVC] [EP] Water efficiency
	[CT] [CVC] [EP] Carbon emissions
	[CT] [EP] Employee engagement

Read more on pages 92-94	Read more on pages 36-37


Diageo Annual Report 2022	5

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

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.


6	Diageo Annual Report 2022

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.

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

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

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


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


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. 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 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

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 2022: 10.3%↑ 2021:9.9% ↑	Volume movement 2022: 10.3% ↑ 2021: 11.2% ↑
Reported net sales movement 2022: 21.4% ↑ 2021: 8.3% ↑	Net sales movement 2022: 21.4% ↑ 2021: 16.0%↑
Reported operating profit movement 2022: 18.2%↑ 2021: 74.6%% ↑	Operating profit movement 2022: 26.3% ↑ 2021: 17.7%↑

1. ISWR, 2021

2. 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

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.


10	Diageo Annual Report 2022

Reported net sales by category


l	Scotch	l	Liqueurs
l	Vodka	l	Gin
l	US whiskey	l	Tequila
l	Canadian whisky	l	Beer
l	Rum	l	Ready to drink
l	IMFL whisky3	l	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

607,374Δ 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 competitor6.

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

3. Indian-Made Foreign Liquor (IMFL) whisky

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

5. Diageo retail sales value % share of TBA for calendar year 2021, IWSR, 2021

6. IWSR, 2021

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	11

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 market1

£865 billion

Total equivalent units of alcohol sold2

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


12	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.

1. IWSR 2021

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

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

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

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

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.

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

Unlocking the omnichannel Scotch whisky

opportunity through malts.com

We are 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.

∆ 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	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.

27,987 people

Our brands

We have a leading portfolio of iconic brands. Its breadth across

categories and price points offers choice for every taste and

celebration.

200+ brands

Our relationships

From grain to glass, strong, trusted relationships with all our

stakeholders are essential to our business.

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.

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’.

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


16	Diageo Annual Report 2022

Our business activities

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.

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.

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.

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.

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.

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.

The value we create1

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

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.


Diageo Annual Report 2022	17

Our people

Highly engaged people, and advantaged culture

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)

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	Men	%	Wom en	%	Not declar ed4	%	Total
North America	1,719	59%	1,150	40%	28	1%	2,897
Europe	5,487	58%	3,914	41%	59	1%	9,460
Asia Pacific	5,634	69%	2,481	30%	89	1%	8,204
Africa	2,445	67%	1,185	32%	18	0%	3,647
Latin America and Caribbean	2,349	62%	1,398	37%	32	1%	3,779
Total	17,634	63%	10,127	36%	226	1%	27,987


Average number of employees by role by gender3
Role	Men	%	Wome n	%	Not declar ed4	%	Total
Executive	8	62%	5	38%	0	0%	13
Senior manager6	304	56%	239	44%	1	0%	544
Line manager7	2,299	66%	1,155	33%	11	0%	3,465
Supervised employee8	15,022	63%	8,729	36%	213	1%	23,965
Diageo (total)	17,634	63%	10,127	36%	226	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


18	Diageo Annual Report 2022

Our strategic priorities

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

OUR STRATEGIC OUTCOMES

[EG] Efficient growth

Consistently grow organic net sales, grow operating profit, deliver

strong free cash flow

[CVC] Consistent value creation

Top-tier total shareholder returns, increase return on invested capital

[CT] Credibility and trust

Trusted by stakeholders for doing business the right way, from grain

to glass

[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

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

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

Building the luxury opportunity

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 market1, 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 share2.

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

Kingdom3.

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


20	Diageo Annual Report 2022

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 brand4 and the work we are 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

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


Diageo Annual Report 2022	21

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.

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 page 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

EDGE 365: 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


22	Diageo Annual Report 2022

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.


Diageo Annual Report 2022	23

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 people on page 18

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 for the long term

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 years1, this investment will support future category growth.

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 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

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


24	Diageo Annual Report 2022

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 194.

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.


Diageo Annual Report 2022	25

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

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.

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.

Making moderation a business position

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.


26	Diageo Annual Report 2022

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 Disorder 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 21 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.

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	Industry complaints upheld	Complaints about Diageo brands upheld	Brand
Australia	ABAC Scheme	48	1	UDL
Ireland	Advertising Standards Authority for Ireland (ASAI)	0	0
United Kingdom	Advertising Standards Authority	7	0
United Kingdom	Portman Group	8	0
United States	Distilled Spirits Council of the United States (DISCUS)	1	0

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.


Diageo Annual Report 2022	27

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

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.


28	Diageo Annual Report 2022

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 LGBT+

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.

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.

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.

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.

Gender representation of our leadership1


Role	Men	%	Women	%	Total
Leadership population2	312	56%	244	44%Δ	556 3

Ethnic representation of our leadership1,4


Role	Ethnically diverse	%	Non- ethnically diverse	%	Decline to self- identify	%	Not disclosed	%	Total
Leadership population2	231	41%Δ	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.

Δ Within PwC’s limited assurance; see page 213 for further details


Diageo Annual Report 2022	29

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 focused 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.

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.


30	Diageo Annual Report 2022

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% 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.

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

Monitoring performance and progress

Net sales growth (%) [REP]

Definition

Sales growth after deducting excise duties.

Organic net sales growth (%)1 [EG]

[CVC] [R] [K]

21.4%

Definition

Sales growth after deducting excise duties,

excluding the impact of exchange rate

movements, hyperinflation adjustment and

acquisitions and disposals.

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.

More detail on page 59

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.

Operating profit growth (%) [REP]

Definition

Operating profit growth including exceptional

operating items.

Organic operating profit growth (%)1

[EG] [CVC] [R] [K]

26.3%

Definition

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.

Why we measure

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.

Performance

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.

More detail on page 58

Basic earnings per share (pence)

Definition

Profit attributable to equity shareholders of the

parent company, divided by the weighted average

number of shares in issue.

Earnings per share before exceptional

items (pence)1 [EG] [CVC] [R] [K]

151.9p

Definition

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

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.

Performance

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 58


32	Diageo Annual Report 2022

Net cash from operating activities(£

million)

Net cash from operating activities

comprises the net cash flow from

operating activities as disclosed on the

face of the consolidated statement of

cash flows.

Free cash flow (£ million)1,2 [EG] [CVC]

[R] [K]

2,783m

Free cash flow comprises the net cash

flow from operating activities

aggregated with the net cash received/

paid for working capital loans

receivable and other investments, and

the net cash expenditure paid for

property, plant and equipment, and

computer software.

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.

Net cash from operating activities

increased by £281 million to £3,935

million. Free cash 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

Return on closing invested capital (%)

Profit for the year divided by net assets

at the end of the financial year.

Return on average invested capital

(ROIC) (%)1 [CVC] [K]

16.8%

Profit before finance charges and

exceptional items attributable to equity

shareholders divided by average

invested capital. Invested capital

comprises net assets aggregated with

exceptional restructuring costs and

goodwill at the date of transition to IFRS,

excluding net post employment benefit

assets/liabilities, net borrowings and

non-controlling interests.

ROIC is used by management to assess

the return obtained from the

group’s asset base. Improving ROIC

builds financial strength to enable

Diageo to attain its financial objectives.

ROIC increased 331bps, driven mainly

by organic operating profit growth,

partially offset by increased tax.

MORE DETAIL ON PAGE 58

Our strategic outcomes:

[EG] Efficient growth [CVC] Consistent value

creation [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. [K] KPI: Key Performance

Indicator [REP] Reported

Total shareholder return (TSR) (%)

[CVC] [R] [K]

Percentage growth in the value of a

Diageo share (assuming all dividends

and capital distributions are re-invested).

Diageo’s Directors have a fiduciary

responsibility to maximise long-term

value for shareholders. We also monitor

our relative TSR performance against

our peers.

TSR was up 4% over the past 12 months

driven by the higher year-on year-share

price.


Diageo Annual Report 2022	33

Positive drinking [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) Total to date:

1.81m1

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.

More detail on page 35

Water efficiency2 [CVC] [CT] [EP] [R] [K]

4.13Δ

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.

More detail on page 36

Inclusion and diversity [CVC] [CT] [EP]

[R] [K]

Percentage of female leaders globally 44%Δ (2021:

42%)

Percentage of ethnically diverse leaders globally

41%Δ (2021: 37%)

The percentage of women and the percentage of

ethnically diverse individuals who are in Diageo

leadership roles.

Nurturing an inclusive and diverse culture is the

right thing to do, and having the most diverse

talent drives commercial performance.

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.

More detail on page 35

Employee engagement4 (%) [CT] [EP]

[K]

82%

Measured through our Your Voice survey; includes

metrics for employee satisfaction, advocacy and

pride.3

Employee engagement is a key enabler of our

performance. The survey allows us to measure

how far employees believe we are living our

values.

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.

More detail on page 18

Carbon emissions2

447Δ [CVC] [CT] [EP] [R] [K]

Absolute volume of Scope 1 and 2 carbon

emissions, in 1,000 tonnes.

Reducing our carbon emissions is a significant part

of our efforts to mitigate climate change.

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 37

Health and safety (LTA) [CT] [EP] [K]

0.92Δ

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.

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’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 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 of

underage drinking the baseline year is 2018.

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

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

Performing against our 2030 targets1


Target by 2030	Fiscal 22 progress	Progress to date	Commentary
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	Number of markets that have launched DRINKiQ		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 21 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.
	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	Number of people educated on the dangers of underage drinking through a Diageo supported education programme		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.
	607,374Δ
Extend our UNITAR partnership and promote changes in attitudes to drink driving reaching five million people SDG alignment: 3.5; 3.6; 17.16	Number of people educated about the dangers of drink driving		‘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.
	500,415
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 reached with responsible drinking messages from our brands		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 with activations of our 0.0 non-alcoholic spirits. We’ll use insights from our research into perceptions of non-alcoholic products to inform how we reach our 2030 goals to promote moderation.
	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		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.
	+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	Percentage of ethnically diverse leaders globally		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.
	+4ppt
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	Measurement and evaluation framework under development		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.

1. All baselines for our ‘Society 2030: Spirit of Progress’ 2030 targets and ambitions are 2020, unless otherwise stated

2. Statements on representation should be considered an ambition for Diageo, not a target

ΔWithin PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index


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 SDG alignment:5.5; 5B;10.2;10.4	Percentage of spend with diverse-owned and disadvantaged businesses		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.
	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	Number of people reached through L4L and other skills programmes		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..
	22,230
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 training sessions delivered through Diageo Bar Academy		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.
	190,383
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		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.
	64%
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		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.
	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		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.
	15.3%

1. Statements on representation should be considered an ambition for Diageo, not a target

ΔWithin PricewaterhouseCoopers LLP’s (PwC) independent limited assurance scope. For further detail and the reporting methodologies, see our ESG Reporting Index


36	Diageo Annual Report 2022


Target by 2030	Fiscal 22 progress	Progress to date	Commentary
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	Percentage of water- stressed markets with investment in WASH		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 access to clean drinking water and sanitation is a risk.
	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 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		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.
	33.3%
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	Percentage reduction in absolute GHG (ktCO2e)		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
	5.3%Δ
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)		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 emissions.6 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.
	(4.7)%
Use 100% renewable energy across all our direct operations SDG alignment: 7.2; 7A; 17.16	Percentage of renewable energy across our direct operations		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 4.1 MW of additional generation capacity.
	+4.6ppt

1. Due to the sale of Ethiopia business in fiscal 22, we now have 12 rather than 13 priority water basins

2. 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.

4. 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

5. Please refer to our reporting methodologies in the ESG Reporting Index for more information on how we calculate location-based versus market-based emissions.

6. A comprehensive review of Scope 3 categories has decreased the fiscal 20 baseline to 4.6 MtCO2e

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	37


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)		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.
	(265)%Δ
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 reduction of total packaging (by weight)		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.
	(16.2)%
	Percentage of recycled content (by weight)		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.
	(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)		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.
	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		While our sales volumes have increased, our overall percentage of PET used – 1.3% of our total packaging materials mix – has remained broadly constant, and 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.
	(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	Percentage of recyclable (or reusable/ compostable)/ percentage of plastic used		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.
	+5.2ppt
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	Number of smallholder farmers in our supply chain supported by our smallholder farmer programme focused on improving economic, environmental and social resilience		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.
	4660
Develop regenerative agriculture pilot programmes in five key sourcing landscapes SDG alignment: 15.2; 15.3; 15.5; 15A; 17.16	Number of regenerative agriculture pilot programmes active		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

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	Diageo Annual Report 2022

Doing business the right way, from grain to glass

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 review

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 review 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.


	Diageo Annual Report 2022	39

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	Employee LTA rate	Employee TRA rate	Independent contractor LTAs1	Employee LTAs	Fatalities2
North America	1.85	4.33	1	5	0
Europe	1.09	2.89	12	11	0
Asia Pacific	0.59	1.17	2	7	0
Africa	1.01	1.75	8	8	0
Latin America and Caribbean	0.61	3.44	4	2	0
Diageo (total)	0.92Δ	2.18	27	33	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 anticipated 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.


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

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 92-94of this Annual Report.

Non-financial information statement


Focus area	Relevant policies and standards	Read more in this report	Page
Promote positive drinking	– Marketing and Digital Marketing Policy – Employee Alcohol Global Policy – Position papers	– Promote positive drinking – Performing against our 2030 targets	26-27 35-38
Champion inclusion and diversity Our people	– Code of Business Conduct – 2021 Gender Pay Gap Report – Human Rights Global Policy	– Champion inclusion and diversity – Our people – Performing against our 2030 targets	28-29 18 35-38
Pioneer grain-to-glass sustainability	– Environmental Global Policy – Sustainable Agriculture Guidelines – Sustainable Packaging Commitments – Partnering with Suppliers Standard – Deforestation Guidelines	– Pioneer grain-to-glass sustainability – Performing against our 2030 targets – Responding to climate-related risks	30-31 35-38 47-56
Human rights	– Human Rights Global Policy – Modern Slavery Statement – Global Brand Promoter Standard	– Doing business the right way from grain to glass	39
Health and safety	– Health, Safety and Wellbeing Global Policy	– Doing business the right way from grain to glass	39-40
Anti-bribery and corruption	– Code of Business Conduct	– Doing business the right way from grain to glass	40
Our contribution to the UN Sustainable Development Goals		– Performing against our 2030 targets	35-38


	Diageo Annual Report 2022	41

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

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.


42	Diageo Annual Report 2022

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	Risk outlook
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.	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	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.
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.	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	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.
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: •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	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


Risk and impact	Mitigation plans	Risk outlook
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	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.
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	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.
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.	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	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.
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: •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	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.


44	Diageo Annual Report 2022


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	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).
9. CONSUMER DISRUPTION [EG][CVC][CT](V) 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.	Ongoing mitigations: •We have a highly diversified portfolio of brands, to ensure coverage of consumer 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	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.
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.	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 of upgraded liquid authentication machines	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

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

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 contain 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).


Risk Scenarios Modelled	Description & Severity	Principal risks
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.	Geopolitical and macroeconomic volatility International direct tax Cyber and IT Resilience
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.	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	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
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

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.

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.


46	Diageo Annual Report 2022

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.

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

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.

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 monthly 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.

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 106-132.

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.


48	Diageo Annual Report 2022

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

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

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.


	Diageo Annual Report 2022	49

Operational scope of our physical risk assessments


Region	Diageo and key TPO assets (detailed assessments)	Agricultural commodities	Supplier assets	Ports2
North America	12 (4)	8	86	6
Scotland	47 (5)	16	103	15
Africa	48 (5)	6	256	14
India	46 (7)	4	59	1
Mexico	16 (4)	1	68	2
Turkey	9 (4)	4	64	5
Total	178 (29)	n/a1	636	43

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.Risk 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.

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


Scenario	Combined number of sites/activities at medium-high risk, including % of total site/activities	Combined number of sites/activities at high risk, including % of total site/activities
Present day	29 (9%)	2 (1%)
2030, 2-3°C (RCP 4.5)	28 (9%)	9 (3%)
2050, 2-3°C (RCP 4.5)	34 (11%)	10 (3%)
2030, 4-5°C (RCP 8.5)	32 (10%)	9 (3%)
2050, 4-5°C (RCP 8.5)	42 (13%)	11 (3%)

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

timeframe in question.


50	Diageo Annual Report 2022

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.

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.


Region	Risks increasing	Risks declining
North America	•Wildfires •Storm winds •High temperatures •Water temperature	•Cold temperatures
Mexico	•Water temperature •Water stress •Wildfires	•Cold temperatures
Scotland	•Water temperature •Wildfires	•Cold temperatures
Africa	•Water temperature •Cold temperatures •Rising sea level / coastal flooding	•Cold temperatures
Turkey	•Water temperature •High temperatures •Rising sea level / coastal flooding	•Cold temperatures
India	•Water stress •Extreme heat	•Cold temperatures


	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

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


Region	Global	UK	US	Canada	Mexico	Turkey	India	Africa
Glass	•
Aluminium	•
Land transport	•
Ocean transport	•
Energy		•	•	•	•	•	•	•
Electricity		•	•	•	•	•	•	•
Raw materials
Barley	•
Wheat	•
Maize	•
Rice	•
Sorghum								•
Sugar	•
Vanilla								•
Anise						•
Agave					•
Grapes						•

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, re use 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.

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	2022 performance
Becoming carbon net zero in our direct operations (Scopes 1 and 2)	Percentage reduction in absolute GHG (ktCO2e)	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 across our direct operations	Percentage of renewable energy across our direct operations	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	2020 (baseline)	2021	2022
North America	128	127	100
Europe	153	130	145
Asia Pacific	37	15	14
Africa	151	172	150
Latin America and Caribbean	23	28	38
Diageo (total)	492	472	447Δ
United Kingdom	87	71	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 8484ktCO2e, 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.

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

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 sections 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	2022 performance
Reduce water use in our operations with a 40% improvement in water use efficiency in water-stressed areas and 30% improvement across the company	Percentage improvement in litres of water used per litre of packaged product	3.7%Δ across the company
Replenish more water than we use for our operations in 100% of sites in water-stressed areas by 2026	Percentage of water replenished in water- stressed areas	15.3%
Invest in improving access to clean water, sanitation, and hygiene (WASH) in communities near our sites and local sourcing areas in 100% of our water-stressed markets	Percentage of water- stressed markets with investment in WASH	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%


Water efficiency (litres per litre packaged) by region by year1,2
Region	2020 (baseline)	2021	2022
North America	5.33	4.91	5.06
Europe	5.10	5.13	4.87
Asia Pacific	3.95	3.58	3.57
Africa	4.11	3.53	3.29
Latin America and Caribbean	4.93	5.07	4.86
Diageo (total)	4.63	4.29	4.13Δ

This year we achieved a 7.8% improvement in water use efficiency in

water-stressed areas and a 3.7% 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.

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

2. In accordance with our environmental reporting methodologies, total water used

excludes irrigation water for agricultural purposes on land under our operational control

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.


	Diageo Annual Report 2022	55


56	Diageo Annual Report 2022

Group financial review

Fiscal 22 organic net sales were up 21%, with all regions contributing double-digit

top-line growth

“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. 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 1. See definitions and reconciliation of non-GAAP measures to GAAP measures

Chief Financial Officer on pages 76-83

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 £3.9 bn

Free cash flow1 was £2.8 bn

Basic eps of 140.2p was up 23.2%

Eps before exceptional items1 increased 29.3% to 151.9 pence

Summary financial information


		2022	2021
Volume	EUm	263.0	238.4
Net sales	£ million	15,452	12,733
Marketing	£ million	2,721	2,163
Operating profit before exceptional items	£ million	4,797	3,746
Exceptional operating items(1)	£ million	(388)	(15)
Operating profit	£ million	4,409	3,731
Share of associate and joint venture profit after tax	£ million	417	334
Non-operating exceptional items(1)	£ million	(17)	14
Net finance charges	£ million	(422)	(373)
Exceptional taxation credit/(charge)(1)	£ million	31	(84)
Tax rate including exceptional items	%	23.9	24.5
Tax rate before exceptional items	%	22.5	22.2
Profit attributable to parent company’s shareholders	£ million	3,249	2,660
Basic earnings per share	pence	140.2	113.8
Basic earnings per share before exceptional items	pence	151.9	117.5
Recommended full year dividend	pence	76.18	72.55

(1) For further details of exceptional items, see pages 156-157

North America

Europe

Asia Pacific

Africa

Latin America and Caribbean

1. Excluding corporate net sales of £54 million (2021 - £20 million).

2. Excluding net corporate cost 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).


	Diageo Annual Report 2022	57


	Volume %	Net sales %	Marketing %	Operating profit before exceptional items %	Operating profit1 %		Volume %	Net sales %	Marketing %	Operating profit before exceptional items %
North America	3	17	28	10	10	North America	3	14	24	7
Europe	20	26	22	60	40	Europe	20	30	26	64
Asia Pacific	8	16	17	17	(23)	Asia Pacific	8	16	16	16
Africa	12	19	18	84	84	Africa	13	22	22	79
Latin America and Caribbean	17	46	51	78	78	Latin America and Caribbean	17	43	49	70
Diageo - reported growth by region1	10	21	26	28	18	Diageo - organic growth by region1	10	21	25	26

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 items(1) 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.

(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) Includes finance charges net of tax.

(4) Excludes finance charges related to acquisitions, disposals, share buybacks and

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).

Operating margin (%)

Reported operating margin decreased 77bps

Organic operating margin increased by 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.

(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

Return on average invested capital (%)(1)

ROIC increased 331bps

ROIC increased 331bps, driven mainly by organic operating profit

growth, partially offset by higher tax.

(1)ROIC calculation excludes exceptional operating items from operating profit. For

further details on ROIC see page 82.

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.

(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

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 premiumisation(1).

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.

(1) IWSR, 2021.

(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 pages 76-83 for details of hyperinflation adjustment.

Net cash from operating activities

and free cash flow (£ million)

Generated £3,935 million net cash from operating activities(1)

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.

(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


		Exchange (a)	Acquisitions and disposals (b)	Organic movement(1)	Fair value remeasurement (d)	Hyperinflation(1)
	30 June 2021	Exchange (a)	Acquisitions and disposals (b)	Organic movement(1)	Fair value remeasurement (d)	Hyperinflation(1)	30 June 2022
	£ million	£ million	£ million	£ million	£ million	£ million	£ million
Sales	19,153	(838)	38	3,567	—	528	22,448
Excise duties	(6,420)	617	(3)	(851)	—	(339)	(6,996)
Net sales	12,733	(221)	35	2,716	—	189	15,452
Cost of sales	(5,038)	127	(22)	(901)	(5)	(134)	(5,973)
Gross profit	7,695	(94)	13	1,815	(5)	55	9,479
Marketing	(2,163)	15	(25)	(532)	1	(17)	(2,721)
Other operating items	(1,786)	47	(4)	(288)	98	(28)	(1,961)
Operating profit before exceptional items	3,746	(32)	(16)	995	94	10	4,797
Exceptional operating items (c)	(15)						(388)
Operating profit	3,731						4,409
Non-operating items (c)	14						(17)
Net finance charges	(373)						(422)
Share of after tax results of associates and joint ventures	334						417
Profit before taxation	3,706						4,387
Taxation (e)	(907)						(1,049)
Profit for the year	2,799						3,338

(1) For the definition of organic movement and hyperinflation see pages 76-83.


	Diageo Annual Report 2022	59

(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.


	Gains/ (losses) £ million
Translation impact	(37)
Transaction impact	5
Operating profit before exceptional items	(32)
Net finance charges – translation impact	4
Net finance charges – transaction impact	(3)
Net finance charges	1
Associates – translation impact	(19)
Profit before exceptional items and taxation	(50)


	Year ended	Year ended
	30 June 2022	30 June 2021
Exchange rates
Translation £1 =	$1.33	$1.35
Transaction £1 =	$1.29	$1.34
Translation £1 =	€1.18	€1.13
Transaction £1 =	€1.15	€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.

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.

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.


60	Diageo Annual Report 2022

(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.

MOVEMENT IN NET BORROWINGS AND EQUITY

Movements in net borrowings


	2022	2021
	£ million	£ million
Net borrowings at the beginning of the year	(12,109)	(13,246)
Free cash flow (a)	2,783	3,037
Acquisitions (b)	(271)	(488)
Sale of businesses and brands	82	14
Share buyback programme (c)	(2,284)	(109)
Net sale of own shares for share schemes (d)	18	49
Purchase of treasury shares in respect of subsidiaries	(15)	—
Dividend paid to non-controlling interests	(81)	(77)
Net movements in bonds (e)	742	(216)
Purchase of shares of non-controlling interests (f)	—	(42)
Net movements in other borrowings (g)	79	(753)
Equity dividend paid	(1,718)	(1,646)
Net decrease in cash and cash equivalents	(665)	(231)
Net (increase)/decrease in bonds and other borrowings	(825)	967
Exchange differences (h)	(334)	598
Other non-cash items (i)	(204)	(197)
Net borrowings at the end of the year	(14,137)	(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

(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.

Movements in equity


	2022	2021
	£ million	£ million
Equity at the beginning of the year	8,431	8,440
Adjustment to 2021 closing equity in respect of hyperinflation in Turkey (a)	251	—
Adjusted equity at the beginning of the year	8,682	8,440
Profit for the year	3,338	2,799
Exchange adjustments (b)	799	(836)
Remeasurement of post employment plans net of taxation	497	(27)
Purchase of shares of non-controlling interests (c)	—	(42)
Hyperinflation adjustments net of taxation (a)	291	(12)
Associates' transactions with non-controlling interest	—	(91)
Dividend to non-controlling interests	(72)	(72)
Equity dividend paid	(1,718)	(1,646)
Share buyback programme (d)	(2,310)	(200)
Other reserve movements	7	118
Equity at the end of the year	9,514	8,431

(a) See page 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.

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

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.

Key financials


	2021	Exchange	Acquisitions and disposals	Organic movement	Other3	2022	Reported movement %
	£ million	£ million	£ million	£ million	£ million	£ million	Reported movement %
Net sales	5,209	98	34	754	—	6,095	17
Marketing	936	19	24	222	(1)	1,200	28
Operating profit before exceptional items	2,237	49	(19)	148	39	2,454	10
Exceptional operating items2	—					(1)
Operating profit	2,237					2,453	10


	Organic volume movement	Reported volume movement	Organic net sales movement	Reported net sales movement
Markets and categories	%	%	%	%
North America	3	3	14	17

US Spirits	4	4	17	19
DBC USA4,5	(2)	—	2	6
Canada	(2)	(2)	3	6

Spirits	3	3	16	18
Beer	(4)	(4)	1	2
Ready to drink4	15	40	21	49

Global giants, local stars and reserve6		Organic volume movement7 %	Organic net sales movement %	Reported net sales movement %
Crown Royal		2	6	8
Don Julio		30	36	38
Casamigos		81	88	91
Johnnie Walker		9	26	28
Smirnoff		(4)	(3)	(2)
Captain Morgan		(3)	(5)	(3)
Ketel One8		7	12	13
Baileys		(10)	(8)	(6)
Guinness		5	7	9
Bulleit		10	14	16
Cîroc vodka		(4)	—	1

1. IWSR, calendar year 2021

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


	Diageo Annual Report 2022	63

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

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 drink(1), 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


	Diageo Annual Report 2022	65

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


	2021	Exchange	Acquisitions and disposals	Organic movement	Other1	Hyperinflation2	2022	Reported movement %
	£ million	£ million	£ million	£ million	£ million	£ million	£ million	Reported movement %
Net sales	2,558	(304)	3	766	—	189	3,212	26
Marketing	473	(35)	—	122	—	17	577	22
Operating profit before exceptional items	635	(110)	1	418	63	10	1,017	60
Exceptional operating items3	(15)						(146)
Operating profit	620						871	40


Markets and categories	Organic volume movement %	Reported volume movement %	Organic net sales movement %	Reported net sales movement %
Europe	20	20	30	26

Great Britain	15	15	20	20
Northern Europe	16	16	15	10
Southern Europe	30	27	33	26
Ireland	35	35	71	65
Eastern Europe	7	8	18	18
Turkey	18	18	49	25

Spirits	18	18	24	19
Beer	36	36	63	60
Ready to drink	23	23	23	22

Global giants and local stars4		Organic volume movement5 %	Organic net sales movement %	Reported net sales movement %
Guinness		42	65	62
Johnnie Walker		22	35	31
Baileys		20	19	16
Smirnoff		35	38	35
Captain Morgan		11	12	9
Tanqueray		36	37	33
Yenì Raki		9	15	14
JεB		19	26	17

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

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.

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

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


	2021	Exchange	Acquisitions and disposals	Organic movement	2022	Reported movement %
	£ million	£ million	£ million	£ million	£ million	Reported movement %
Net sales	2,488	(6)	—	402	2,884	16
Marketing	418	4	—	68	490	17
Operating profit before exceptional items	608	5	—	98	711	17
Exceptional operating items1	—				(241)
Operating profit	608				470	(23)


Markets and categories	Organic volume movement %	Reported volume movement %	Organic net sales movement %	Reported net sales movement %
Asia Pacific	8	8	16	16

India	7	7	17	16
Greater China	6	6	13	17
Australia	2	2	—	(2)
South East Asia	14	14	20	19
North Asia	(5)	(5)	12	6
Travel Retail Asia and Middle East	135	125	178	184

Spirits	8	8	17	18
Beer	4	4	9	7
Ready to drink	3	3	2	(1)

Global giants and local stars2		Organic volume movement3 %	Organic net sales movement %	Reported net sales movement %
Johnnie Walker		24	28	28
Shui Jing Fang4		16	19	24
McDowell's		5	6	4
Guinness		5	9	7
The Singleton		11	16	18
Smirnoff		13	14	14
Baileys		12	13	12
Windsor		1	(9)	(13)

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.

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 whisky5.

•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

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


	2021	Exchange	Acquisitions and disposals	Organic movement	2022	Reported movement %
	£ million	£ million	£ million	£ million	£ million	Reported movement %
Net sales	1,412	(33)	(5)	308	1,682	19
Marketing	168	(5)	—	36	199	18
Operating profit	171	(10)	2	152	315	84


Markets and categories	Organic volume movement %	Reported volume movement %	Organic net sales movement %	Reported net sales movement %
Africa1	13	12	22	19

East Africa	22	22	25	24
Africa Regional Markets1	9	7	14	9
Nigeria	1	1	30	26
South Africa1	6	4	12	10

Spirits	12	12	21	20
Beer1	14	13	22	19
Ready to drink1	11	5	28	20

Global giants and local stars2		Organic volume movement3 %	Organic net sales movement %	Reported net sales movement %
Guinness		4	17	13
Johnnie Walker		16	22	22
Smirnoff		9	21	21
Other beer:
Malta Guinness1		30	53	40
Senator		38	36	33
Tusker		14	27	26
Serengeti		9	9	10

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

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.

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 focused 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 focused 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.


	Diageo Annual Report 2022	71

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


	2021	Exchange	Acquisitions and disposals	Organic movement	Other1	2022	Reported movement %
	£ million	£ million	£ million	£ million	£ million	£ million	Reported movement %
Net sales	1,046	25	3	451	—	1,525	46
Marketing	161	2	1	79	—	243	51
Operating profit	303	25	—	218	(8)	538	78


Markets and categories	Organic volume movement %	Reported volume movement %	Organic net sales movement %	Reported net sales movement %
Latin America and Caribbean	17	17	43	46

PUB	12	12	36	41
Mexico	6	7	24	28
CCA	34	34	56	61
Andean	18	18	45	38
PEBAC	31	31	64	62

Spirits	17	17	45	48
Beer	2	2	6	2
Ready to drink	36	36	42	45

Global giants and local stars2		Organic volume movement3 %	Organic net sales movement %	Reported net sales movement %
Johnnie Walker		42	59	63
Buchanan’s		48	59	60
Don Julio		9	34	37
Old Parr		47	61	62
Smirnoff		22	17	18
Black & White		(3)	9	10
Baileys		20	31	32
Tanqueray		37	41	45

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 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

Key categories


	Organic volume movement(1) %	Organic net sales movement %	Reported net sales movement %
Spirits(2)	10	21	21
Scotch	18	29	29
Tequila	47	55	57
Vodka(3)(4)	12	11	11
Canadian whisky	(1)	6	7
Rum(3)	5	6	6
Liqueurs	11	10	8
Gin(3)	16	18	18
Indian-Made Foreign Liquor (IMFL) whisky	5	7	5
US whiskey	5	14	16
Beer	14	25	22
Ready to drink	14	18	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.


Reported volume by category	Reported net sales by category	Reported marketing spend by category


n	Scotch	n	Vodka	n	US whiskey	n	Canadian whisky	n	Rum	n	IMFL whisky
n	Liqueurs	n	Gin	n	Tequila	n	Beer	n	Ready to drink	n	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.

•Vodka grew 11%, with growth across all regions, particularly

Europe. 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.

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.

–Johnnie Walker Black Label grew 39%, with double-

digit growth 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

Vodka

10% of Diageo’s reported net sales and grew 11%

•Growth was across all regions, with a particularly strong

performance in Europe.

•Smirnoff net sales increased 10%, with double-digit growth in all

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.

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.

•Growth was primarily driven by Smirnoff Ice, as well as strong

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 reserve(1):


	Organic volume movement(2) %	Organic net sales movement %	Reported net sales movement %
Global giants
Johnnie Walker	25	34	35
Guinness	16	32	30
Smirnoff	11	11	11
Baileys	10	9	8
Captain Morgan	3	2	2
Tanqueray	18	20	20
Local stars
Crown Royal	1	6	8
Shui Jing Fang(3)	16	19	24
McDowell's	5	5	4
Buchanan’s	36	39	40
JεB	17	22	16
Old Parr	47	59	59
Black & White	7	20	20
Yenì Raki	9	15	14
Windsor	1	(9)	(13)
Bundaberg	1	(4)	(6)
Ypióca	(9)	8	12
Reserve
Don Julio	24	36	38
Casamigos	83	90	93
Scotch malts	14	17	16
Cîroc vodka	4	6	7
Ketel One(4)	12	12	14
Bulleit	12	16	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.


	Diageo Annual Report 2022	75

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.

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.

(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.

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.

Definitions and reconciliation of non-GAAP measures to GAAP measures


76	Diageo Annual Report 2022

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.

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:


	North America million	Europe million	Asia Pacific million	Africa million	Latin America and Caribbean million	Corporate million	Total million
Volume (equivalent units)
2019 reported	49.4	45.4	95.1	33.6	22.4	—	245.9
Disposals	(2.1)	(0.1)	—	(2.7)	—	—	(4.9)
2019 adjusted	47.3	45.3	95.1	30.9	22.4	—	241.0
Organic movement (2020)	0.1	(5.2)	(14.5)	(4.0)	(3.4)	—	(27.0)
Organic movement (2021)	5.1	2.9	7.0	4.8	4.1	—	23.9
2020 and 2021 movement on a constant basis	5.2	(2.3)	(7.5)	0.8	0.7	—	(3.1)

Volume (equivalent units)
2021 reported	53.2	42.7	87.6	31.8	23.1	—	238.4
Disposals(2)	—	(0.7)	—	(0.4)	—	—	(1.1)
2021 adjusted	53.2	42.0	87.6	31.4	23.1	—	237.3
Organic movement	1.4	8.5	6.6	4.0	4.0	—	24.5
Acquisitions and disposals(2)	0.2	0.7	—	0.3	—	—	1.2
2022 reported	54.8	51.2	94.2	35.7	27.1	—	263.0
Organic movement %	3	20	8	13	17	—	10

2019 to 2022 reported growth %	11	13	(1)	6	21	—	7
2019 to 2022 growth on a constant basis %	13	15	(1)	16	21	—	9


	Diageo Annual Report 2022	77


	North America £ million	Europe £ million	Asia Pacific £ million	Africa £ million	Latin America and Caribbean £ million	Corporate £ million	Total £ million
Sales
2021 reported	5,803	4,795	5,146	2,020	1,369	20	19,153
Exchange	1	(1)	(8)	2	3	—	(3)
Disposals(2)	—	(21)	—	(30)	—	—	(51)
2021 adjusted	5,804	4,773	5,138	1,992	1,372	20	19,099
Organic movement	735	1,298	525	433	541	35	3,567
Acquisitions and disposals(2)	38	26	—	20	5	—	89
Exchange	105	(885)	(39)	(42)	27	(1)	(835)
Hyperinflation	—	528	—	—	—	—	528
2022 reported	6,682	5,740	5,624	2,403	1,945	54	22,448
Organic movement %	13	27	10	22	39	175	19


Net sales
2019 reported	4,460	2,939	2,688	1,597	1,130	53	12,867
Exchange	(34)	(19)	1	(2)	4	2	(48)
Reclassification	—	—	—	—	(10)	—	(10)
Disposals	(75)	(1)	(1)	(91)	(1)	—	(169)
2019 adjusted	4,351	2,919	2,688	1,504	1,123	55	12,640
Organic movement (2020)	105	(358)	(423)	(200)	(169)	(16)	(1,061)
Organic movement (2021)	929	108	308	258	275	(18)	1,860
2020 and 2021 movement on a constant basis	1,034	(250)	(115)	58	106	(34)	799

Net sales
2021 reported	5,209	2,558	2,488	1,412	1,046	20	12,733
Exchange(1)	1	—	(2)	2	1	—	2
Disposals(2)	—	(20)	—	(20)	—	—	(40)
2021 adjusted	5,210	2,538	2,486	1,394	1,047	20	12,695
Organic movement	754	766	402	308	451	35	2,716
Acquisitions and disposals(2)	34	23	—	15	3	—	75
Exchange(1)	97	(304)	(4)	(35)	24	(1)	(223)
Hyperinflation	—	189	—	—	—	—	189
2022 reported	6,095	3,212	2,884	1,682	1,525	54	15,452
Organic movement %	14	30	16	22	43	175	21

2019 to 2022 reported growth %	37	9	7	5	35	2	20
2019 to 2022 growth on a constant basis %	41	18	11	24	50	2	28


	North America £ million	Europe £ million	Asia Pacific £ million	Africa £ million	Latin America and Caribbean £ million	Corporate £ million	Total £ million
Marketing
2021 reported	936	473	418	168	161	7	2,163
Exchange	—	(1)	1	(3)	—	(1)	(4)
Disposals(2)	—	(1)	—	(2)	—	—	(3)
2021 adjusted	936	471	419	163	161	6	2,156
Organic movement	222	122	68	36	79	5	532
Acquisitions and disposals(2)	24	1	—	2	1	—	28
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	(1)	—	—	—	—	—	(1)
Exchange	19	(34)	3	(2)	2	1	(11)
Hyperinflation	—	17	—	—	—	—	17
2022 reported	1,200	577	490	199	243	12	2,721
Organic movement %	24	26	16	22	49	83	25

Definitions and reconciliation of non-GAAP measures to GAAP measures continued


78	Diageo Annual Report 2022


	North America £ million	Europe £ million	Asia Pacific £ million	Africa £ million	Latin America and Caribbean £ million	Corporate £ million	Total £ million
Operating profit before exceptional items
2019 reported							4,116
Exchange							—
Disposal							(29)
2019 adjusted							4,087
Organic movement (2020)							(589)
Organic movement (2021)							627
2020 and 2021 movement on a constant basis							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	2,237	635	608	171	303	(208)	3,746
Exchange(1)	(14)	(2)	(5)	10	7	(9)	(13)
Fair value remeasurement of contingent considerations and equity option	7	27	—	—	—	—	34
Acquisitions and disposals(2)	9	(10)	—	12	—	—	11
2021 adjusted	2,239	650	603	193	310	(217)	3,778
Organic movement	148	418	98	152	218	(39)	995
Acquisitions and disposals(2)	(28)	11	—	(10)	—	—	(27)
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	32	36	—	—	(3)	—	65
Fair value remeasurement of biological assets	—	—	—	—	(5)	—	(5)
Exchange(1)	63	(108)	10	(20)	18	18	(19)
Hyperinflation	—	10	—	—	—	—	10
2022 reported	2,454	1,017	711	315	538	(238)	4,797
Organic movement %	7	64	16	79	70	(18)	26

Organic operating margin % (3)
2022	40.0	32.3	24.3	20.3	35.2	n/a	31.0
2021	43.0	25.6	24.3	13.8	29.6	n/a	29.8
Margin movement (bps)	(295)	671	2	643	564	n/a	121

2019 to 2022 reported growth %	123	66	74	106	112	(198)	17
2019 to 2022 growth on a constant basis %	35	48	18	92	84	(75)	25

(i)For the reconciliation of sales to net sales, see page 59.

(ii)Percentages and margin movement are calculated on rounded figures.

Notes: Information in respect of the organic movement calculations

(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.


	Diageo Annual Report 2022	79

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	—	—	—	—	9
Chase Distillery	—	—	—	—	2
Lone River Ranch Water	—	—	—	—	—
Loyal 9 Cocktails	—	—	—	—	—
	—	—	—	—	11
Disposals
South African ready to drink	—	(8)	(4)	—	—
Meta Abo Brewery	(0.4)	(22)	(16)	(2)	12
Picon	(0.7)	(21)	(20)	(1)	(12)
	(1.1)	(51)	(40)	(3)	—

Acquisitions and disposals	(1.1)	(51)	(40)	(3)	11

Year ended 30 June 2022
Acquisitions
Aviation Gin and Davos Brands	—	6	5	(4)	(11)
Chase Distillery	—	5	3	(1)	(2)
Lone River Ranch Water	0.1	14	13	(13)	(13)
Loyal 9 Cocktails	—	14	11	(5)	(2)
Mezcal Unión	0.1	6	5	(1)	1
21Seeds	—	3	3	(2)	(2)
	0.2	48	40	(26)	(29)
Disposal
Meta Abo Brewery	0.3	20	15	(2)	(10)
Picon	0.7	21	20	—	12
	1	41	35	(2)	2

Acquisitions and disposals	1.2	89	75	(28)	(27)

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:


	2022	2021
	£ million	£ million
Profit attributable to equity shareholders of the parent company	3,249	2,660
Exceptional operating and non-operating items	405	1
Exceptional tax charges	—	88
Tax in respect of exceptional operating and non-operating items	(31)	(4)
Exceptional items attributable to non-controlling interests	(103)	1
	3,520	2,746

Weighted average number of shares	million	million
Shares in issue excluding own shares	2,318	2,337
Dilutive potential ordinary shares	7	8
	2,325	2,345

	pence	pence
Basic earnings per share before exceptional items	151.9	117.5
Diluted earnings per share before exceptional items	151.4	117.1

Definitions and reconciliation of non-GAAP measures to GAAP measures continued


80	Diageo Annual Report 2022

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.

Free cash flow reconciliations for the year ended 30 June 2022 and 30 June 2021 are set out in the table below:


	2022	2021
	£ million	£ million
Net cash inflow from operating activities	3,935	3,654
Disposal of property, plant and equipment and computer software	17	13
Purchase of property, plant and equipment and computer software	(1,097)	(626)
Movements in loans and other investments	(72)	(4)
Free cash flow	2,783	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:


	2022	2021
	£ million	£ million
Profit for the year	3,338	2,799
Taxation	1,049	907
Share of after tax results of associates and joint ventures	(417)	(334)
Net finance charges	422	373
Non-operating items	17	(14)
Operating profit	4,409	3,731
Exceptional operating items	388	15
Fair value remeasurement	(60)	36
Depreciation, amortisation and impairment(1)	489	447
Hyperinflation adjustment	(10)	—
Retranslation to budgeted exchange rates	27	375
	5,243	4,604

Cash generated from operations	5,212	4,857
Net exceptional cash paid/(received)(2)	15	(49)
Post employment payments less amounts included in operating profit(1)	89	35
Net movement in maturing inventories(3)	360	174
Provision movement	58	60
Dividends received from associates	(190)	(290)
Other items(1)	(53)	(88)
Hyperinflation adjustment	(22)	—
Retranslation to budgeted exchange rates	42	387
	5,511	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	81

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:


	2022	2021
	£ million	£ million
Operating profit	4,409	3,731
Exceptional operating items	388	15
Profit before exceptional operating items attributable to non-controlling interests	(192)	(138)
Share of after tax results of associates and joint ventures	417	334
Tax at the tax rate before exceptional items of 22.5% (2021 – 22.2%)	(1,173)	(906)
	3,849	3,036

Average net assets (excluding net post employment benefit assets/liabilities)	8,428	8,146
Average non-controlling interests	(1,641)	(1,587)
Average net borrowings	12,859	12,672
Average integration and restructuring costs (net of tax)	1,639	1,639
Goodwill at 1 July 2004	1,562	1,562
Average invested capital	22,847	22,432

Return on average invested capital	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:


	2022	2021
	£ million	£ million
Borrowings due within one year	1,522	1,862
Borrowings due after one year	14,498	12,865
Fair value of foreign currency derivatives and interest rate hedging instruments	(73)	(232)
Lease liabilities	475	363
Less: Cash and cash equivalents	(2,285)	(2,749)
Net borrowings	14,137	12,109
Post employment benefit liabilities before tax	402	574
Adjusted net borrowings	14,539	12,683

Profit for the year	3,338	2,799
Taxation	1,049	907
Net finance charges	422	373
Depreciation, amortisation and impairment (excluding exceptional intangible impairment)	492	447
Exceptional intangible impairment	336	—
EBITDA	5,637	4,526
Exceptional operating items (excluding impairment)	49	15
Non-operating items	17	(14)
Adjusted EBITDA	5,703	4,527

Adjusted net borrowings to adjusted EBITDA	2.5	2.8

Definitions and reconciliation of non-GAAP measures to GAAP measures continued


82	Diageo Annual Report 2022

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:


	2022	2021
	£ million	£ million
Tax before exceptional items (a)	1,080	823
Tax in respect of exceptional items	(31)	(4)
Exceptional tax charge	—	88
Taxation on profit (b)	1,049	907

Profit before taxation and exceptional items (c)	4,792	3,707
Non-operating items	(17)	14
Exceptional operating items	(388)	(15)
Profit before taxation (d)	4,387	3,706

Tax rate before exceptional items (a/c)	22.5%	22.2%
Tax rate after exceptional items (b/d)	23.9%	24.5%

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	83

Leadership and experience

Javier Ferrán [N*]

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

Ivan Menezes [E*]

Chief Executive

Nationality: American/British

Appointed: Chief Executive: July 2013

(Appointed Executive Director: July 2012)

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

Lavanya Chandrashekar [E]

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

Susan Kilsby [A] [N] [R*]

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

Melissa Bethell [A] [N] [R]

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.

Karen Blackett [A] [N] [R]

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

Board of Directors


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

Valérie Chapoulaud-Floquet [A] [N] [R]

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

Sir John Manzoni [A] [N] [R]

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

Lady Mendelsohn [A] [N] [R]

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 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

Alan Stewart [A*] [N] [R]

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

Ireena Vittal [A] [N] [R]

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

Expertise and diversity

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

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

Ivan Menezes and Lavanya Chandrashekar are also

members of the Executive Committee.

Their biographies can be found on page [84].

Executive Committee


86	Diageo Annual Report 2022

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)

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.

Letter from the Chairman of the Board of Directors


	Diageo Annual Report 2022	87

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.		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 •Develops the group’s strategic direction for consideration and approval by the Board •Implements the strategy agreed by the Board •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 Committee •Is supported by the Finance Committee and Filings Assurance Committee in the management of financial reporting of the company	Chairman Javier Ferrán •Responsible for the operation, leadership and governance of the Board •Ensures all Directors are fully informed of matters and receives precise, timely and clear information sufficient to make informed judgements •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 Executive Directors •Acts as designated Non-Executive Director for workforce engagement	Chief Financial Officer Lavanya Chandrashekar •Manages all aspects of the group's 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


88	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.

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	89

•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

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.

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.


	Annual General Meeting 2021	Board (maximum 7)	Audit Committee (maximum 5)	Nomination Committee (maximum 6)	Remuneration Committee (maximum 5)
Javier Ferrán	ü	7/7	5/51	6/6	5/51
Ivan Menezes	ü	7/7	3/51	6/61	5/51
Lavanya Chandrashekar	ü	7/7	5/51	0/0	2/21
Susan Kilsby	ü	7/7	5/5	6/6	5/5
Melissa Bethell	ü	7/7	5/5	6/6	5/5
Karen Blackett2	N/A	0/0	0/0	0/0	1/1
Valérie Chapoulaud-Floquet	ü	7/7	5/5	6/6	5/5
Sir John Manzoni	ü	7/7	5/5	6/6	5/5
Nicola Mendelsohn	ü	7/7	4/5	6/6	5/5
Alan Stewart	ü	7/7	5/5	6/6	5/5
Ireena Vittal	ü	6/7	5/5	6/6	5/5

1. Attended by invitation

2. Appointed to the Board on 1 June 2022

Corporate governance report continued


90	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 priority	Strategic outcome	Stakeholders
Strategic 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
Operational matters	•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
	Sustain quality growth		Efficient growth		People
	Embed everyday efficiency		Consistent value creation		Consumers
	Invest smartly		Credibility and trust		Customers
	Promote positive drinking		Engaged people		Suppliers
	Champion inclusion and diversity				Communities
	Pioneer grain-to-glass sustainability				Investors
					Governments and regulators


	Diageo Annual Report 2022	91

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.

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


92	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.

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	93

Communities


	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.

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.

Governments and regulators


	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

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


94	Diageo Annual Report 2022

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.

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.

Board evaluation


Main conclusions	Key actions for focus
Board composition, membership and appointment processes
•Recent appointments of directors have ensured appropriate quality, experience, background and diversity on the Board •Strong satisfaction that the Board is of sufficient size, balance, skills and diversity to discharge its duties	•Review succession planning and pipeline at executive and senior management levels •Continue to review the balance of skills, experience and knowledge 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 discussion during meetings •Ensure appropriate topics for consideration at meetings	•Continue to build Board’s awareness of analysts’ views of the industry by circulating key reports periodically •Enhance tracking and reporting of key issues and actions taken 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 challenging •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	•Focus on forecast volumes in investment and capital expenditure proposals •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


	Diageo Annual Report 2022	95

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.

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.

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.

•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.

•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.

•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.

Corporate governance report continued


96	Diageo Annual Report 2022

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.


	Diageo Annual Report 2022	97

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;

•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


98	Diageo Annual Report 2022

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

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.

Audit Committee report


	Diageo Annual Report 2022	99

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.

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


100	Diageo Annual Report 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.


	Diageo Annual Report 2022	101

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		Strategic priority	Strategic outcome
Corporate reporting	•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
Internal controls	•GAR updates •Business Integrity updates including breach and reporting update •Controls testing update and s. 404 assessment
External audit and assurance	•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 priorities				Strategic outcomes
	Sustain quality growth	Invest smartly	Champion inclusion and diversity		Efficient growth	Credibility and trust
	Embed everyday efficiency	Promote positive drinking	Pioneer grain-to-glass sustainability		Consistent value creation	Engaged people

Audit Committee report continued


102	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 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 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 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.
The appropriateness of the valuation of post employment liabilities, and the recognition of any surplus. Refer to note 14 of the Financial Statements.		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.
Accounting for business combinations. Refer to note 8 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.
The application of hyperinflationary accounting in Turkey. Refer to note 1 of the Financial Statements.		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.
Whether the Annual Report is fair, balanced and understandable.		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 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.		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	103

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

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


104	Diageo Annual Report 2022

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%.

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	105

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	109
Pay for performance at a glance	110
Remuneration Committee governance	111
Directors’ remuneration policy	113
Annual report on remuneration	119
Looking back on 2022
Single figure of remuneration table	119
Annual incentive payouts for 2022	120
Long-term incentives vesting in 2022	121
Pension and benefits in 2022	122
Long-term incentives awarded in 2022	123
Outstanding share plan interests	124
Shareholding requirement	125
CEO total remuneration and TSR performance	126
CEO pay ratio	126
Annual change in pay for Directors and employees	128
Non-Executive Director pay	129
Looking ahead to 2023
Salary increases for the year ahead	130
Annual incentive design for the year ahead	130
Long-term incentives for the year ahead	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.

Directors' remuneration report


106	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.


	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	107

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

Directors' remuneration report continued


108	Diageo Annual Report 2022


Remuneration at a glance
	Salary	Allowances and benefits	Annual incentive	Long-term incentives	Shareholding requirement
Purpose and link to strategy	– Supports the attraction and retention of the best global talent with the capability to deliver Diageo’s strategy	– Provision of market-competitive and cost-effective benefits supports attraction and retention of talent	– Incentivises delivery of Diageo’s financial and strategic targets – Provides focus on key financial metrics and the individual’s contribution to the company’s performance	– Rewards consistent long-term performance in line with Diageo’s business strategy – Provides focus on delivering superior long-term returns to shareholders	– Ensures alignment between the interests of Executive Directors and shareholders
Key features	– Normally reviewed annually on 1 October – Salaries take account of external market and internal employee context	– Provision of competitive benefits linked to local market practice – Maximum company pension contribution is 14% of salary for new Executive Director appointments, which is aligned to the offering for the wider workforce in the United Kingdom	– Target opportunity is 100% of salary and maximum is 200% of salary – Performance measures, weightings and stretching targets are set by the Remuneration Committee – Subject to malus and clawback provisions – Executive Directors defer one- third of earned bonus payment into Diageo shares held for three years, which first took effect on the bonus for the year ended 30 June 2021 – Remainder paid out in cash after the end of the financial year	– Annual grant of performance shares and share options – CEO award up to 500% of salary – CFO award up to 480% of salary (% of salary for both CEO and CFO described in performance share equivalents) – Performance measures, weightings and stretching targets are set annually – Three-year performance period plus two-year retention period – Subject to malus and clawback provisions – Grant price based on six- month average to 30 June preceding grant date	– Minimum shareholding requirement within five years of appointment: – CEO 500% of salary – CFO 400% of salary – Post-employment shareholding requirement for Executive Directors of 100% of in- employment requirement in the first year after leaving the company and 50% in the second year after leaving the company
Planned for year ending 30 June 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	– Allowances and benefits unchanged from prior year – Company pension contribution: – CEO 20% of salary until 1 January 2023, at which point the CEO's pension contribution will reduce to 14% of salary – CFO 14% of salary	– Targets will be set for the full 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	– 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	– No change to shareholding requirement
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	- Full year targets resumed for year ended 30 June 2022. – Payout of 100% of maximum for the financial elements of the plan – Total payout of 93.75% of maximum for the CEO and 90.0% of maximum for the CFO	– Vesting of 2019 performance shares at 59.3% of maximum for Ivan Menezes and 59.8% of maximum for Lavanya Chandrashekar – Vesting of 2019 share options at 61.5% of maximum for Ivan Menezes. The CFO was not in her current role in 2019 and does not hold a share option award for that year	– 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 unchanged from prior year – Company pension contribution: – CEO 20% of salary – CFO 20% of salary	– Targets set over two half-year periods – Payout of 100% of maximum for the financial element of the plan – Total payout of 93.75% of maximum for the CEO and 91.3% of maximum for the CFO	– Vesting of 2018 performance shares at 29.3% of maximum – Vesting of 2018 share options at 10% of maximum	– CEO shareholding 2,735% of salary – CFO (Kathryn Mikells) shareholding 868% of 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.


	Diageo Annual Report 2022	109

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)

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



	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%

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.


110	Diageo Annual Report 2022

Remuneration Committee Governance

Remuneration Committee

Over the year, the Remuneration Committee has consisted of the

following independent Non-Executive Directors: Susan Kilsby, Melissa

Bethell, Valérie Chapoulaud-Floquet, 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;

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	Abstentions
Directors’ remuneration policy1	Total number of votes	1,644,443,671	121,538,951	1,765,982,622	3,321,427
Directors’ remuneration policy1	Percentage of votes cast	93.12%	6.88%	100%	n/a
Directors' remuneration report (excluding the policy)2	Total number of votes	1,661,293,734	68,483,076	1,729,776,810	23,650,135
Directors' remuneration report (excluding the policy)2	Percentage of votes cast	96.04%	3.96%	100%	n/a

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

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

The Committee was pleased with the level of support shown for the Directors' remuneration policy and Directors' remuneration report, and

appreciates the active participation of shareholders and their representative advisory bodies in consulting on executive remuneration matters.


	Diageo Annual Report 2022	111

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.


Key decision	Link to Diageo remuneration principles	Link to corporate governance principles	Stakeholder engagement
Manage the return to annual incentive plan target-setting. In the previous year, performance was measured over two half-year periods		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)	As part of wider shareholder engagement, we noted the return to the usual annual approach to target setting.
Setting targets for performance shares and share options granted under the Diageo Long Term Incentive Plan (DLTIP) in September 2021		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)	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.
Payout under the annual incentive plan for the Executive Committee for the year ended 30 June 2022		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 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.
Vesting of performance shares and share options granted in September 2019 in line with measured achievements, with no application of discretion		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)	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

Directors' remuneration report continued


112	Diageo Annual Report 2022

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.

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.

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.


	Diageo Annual Report 2022	113

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.

Directors' remuneration report continued


114	Diageo Annual Report 2022

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

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	115

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.

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.

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


116	Diageo Annual Report 2022

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

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

office.


Executive Director	Date of service contract
Ivan Menezes	7 May 2013
Lavanya Chandrashekar	13 January 2021


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


	Diageo Annual Report 2022	117

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
Non-Executive Directors	Date of appointment to the Board	Current letter of appointment expires
Javier Ferrán	22 July 2016	AGM 2022
Susan Kilsby	4 April 2018	AGM 2024
Melissa Bethell	30 June 2020	AGM 2023
Valérie Chapoulaud-Floquet	1 January 2021	AGM 2024
Sir John Manzoni	1 October 2020	AGM 2023
Lady Mendelsohn	1 September 2014	AGM 2023
Alan Stewart	1 September 2014	AGM 2023
Ireena Vittal	2 October 2020	AGM 2023
Karen Blackett	1 June 2022	AGM 2025

Payments under previous policies

The Committee reserves the right to make any remuneration payments

and payments for loss of office, notwithstanding that they are not in line

with the policy set out above, where the terms of the payment were

agreed (i) under a previous policy, in which case the provision of that

policy shall continue to apply until such payments have been made; (ii)

before the policy or the relevant legislation came into effect; or (iii) at a

time when the relevant individual was not a Director of the company

and, in the opinion of the Committee, the payment was not in

consideration for the individual becoming a Director of the company.

Remuneration for the wider workforce

The structure of the reward package for the wider employee

population is based on the principle that it should be sufficient to attract

and retain the best talent and be competitive within our broader

industry, remunerating employees for their contribution linked to our

holistic performance. It is driven by local market practice, as well as

level of seniority and accountability, reflecting the global nature of

Diageo’s business.

There is clear alignment in the pay structures for Executives 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

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


118	Diageo Annual Report 2022

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.


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

Performance related pay
Annual incentive4	£2,413	$3,209	£2,308	$3,115	£1,320	$1,755
Long-term incentives5	£3,850	$5,120	£2,092	$2,825	£131	$174
Total variable pay6	£6,262	$8,329	£4,400	$5,940	£1,450	$1,929

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

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	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.
3	Pension	Pension benefits earned during the year represent the increase in the pension fund balances over the year in the Diageo North America Inc. pension plans over and above the increase due to inflation. As Ivan Menezes has been a deferred member of the Diageo Pension Scheme (DPS) in the United Kingdom since 31 January 2012, 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.	Page 122
4	Annual incentive	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.	Page 120
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%. £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.	Page 121
6	Totals	Some figures and sub-totals add up to slightly different amounts than the totals due to rounding.


	Diageo Annual Report 2022	119

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


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


Payout
	Group (weighted 80%)	IBO (weighted 20%)	Total (% max)	Total (% salary)	Total (’000)4 GBP	Total (’000) USD
Ivan Menezes4,5	80.00%	13.75%	93.75%	187.50%	£2,413	$3,209
Lavanya Chandrashekar4,5	80.00%	10.00%	90.00%	180.00%	£1,320	$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.

Directors' remuneration report continued


120	Diageo Annual Report 2022

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

companies; and

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

The vesting profile for relative TSR is shown below:


TSR ranking (out of 17)	Vesting (% max)	TSR ranking (out of 17)	Vesting (% max)	TSR peer group (16 companies)
1st, 2nd or 3rd	100	7th	55	AB Inbev	Heineken	Pernod Ricard
4th	95	8th	45	Brown-Forman	Kimberly-Clark	Procter & Gamble
5th	75	9th	20	Carlsberg	L'Oréal	Reckitt Benckiser
6th	65	10th or below	0	The Coca-Cola Company	Mondelēz International	Unilever
				Colgate-Palmolive	Nestlé
				Groupe Danone	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	Weighting	Threshold	Midpoint	Maximum	Actual	Vesting (% maximum)5
Vesting if performance achieved (% maximum)		20%	60%	100%
Organic net sales growth (CAGR)1	33.3%	3.75%	4.875%	6.0%	8.9%	33.3%
Adjusted profit before exceptional items and tax (CAGR)2	33.3%	4.5%	7.5%	10.5%	8.8%	26.0%
Cumulative free cash flow3	33.3%	£8,600m	£9,100m	£9,600m	£8,271m	0.0%
Vesting of performance shares (% maximum)						59.3%
Adjusted profit before exceptional items and tax (CAGR)2	50%	4.5%	7.5%	10.5%	8.8%	39.0%
Relative total shareholder return4	50%	9th	–	3rd	8th	22.5%
Vesting of share options (% maximum)						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.


	Diageo Annual Report 2022	121

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

1.Net sales growth is calculated on an organic basis consistent with the methodology of external reporting which is presented on a constant currency basis excluding the impact of

acquisitions and disposals and excluding any hyperinflation impact above the new organic treatment of hyperinflationary economies.

2. The compound annual growth rate (CAGR) for profit before exceptional items and tax is based on the application of annual PBET growth rates in each of the individual years ended June

2020, June 2021 and June 2022 (using the year ended June 2019 as a base) excluding the impact of exchange, exceptional items, acquisition and disposals, share buyback programmes,

and the post-employment net income/charges. The impact of hyperinflation on operating profit is considered under the same new organic methodology as for net sales while the impact

on other lines (primarily on finance charges) is excluded.

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

buyback programmes, acquisition and disposals and incorporates the new organic treatment of hyperinflationary 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	Awarded (ADRs)	Vesting (% Max)	Vesting (ADRs)	Option price	ADR price	Dividend Equivalent share	Estimated Value ($'000)1	Estimated Value (£'000)
Ivan Menezes	Performance shares	02/09/2019	38,827	59.3%	23,024	—	$190.22	1,390	$4,644	£3,492
	Share options	02/09/2019	38,827	61.5%	23,878	$170.28	$190.22	—	$476	£358
Lavanya Chandrashekar	Performance shares	02/09/2019	1,444	59.8%	863	—	$190.22	52	$174	£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.


	30 June 2022		30 June 2021
Executive Director	UK pension £'000 p.a.	US benefit £'000	UK pension £'000 p.a.	US benefit £'000
Ivan Menezes1	75	9,251	75	7,645
Lavanya Chandrashekar2	Nil	302	Nil	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.

Directors' remuneration report continued


122	Diageo Annual Report 2022

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


Executive Director	UK benefits (DPS)	US benefits (Cash Balance Plan)	US benefits (BSP)	US benefits (SERP)
Ivan Menezes	60	65	6 months after leaving service	6 months after leaving service
Lavanya Chandrashekar	n/a	65	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
2021 DLTIP	Organic net sales growth	Organic profit before exceptional items and tax growth	Reduction in greenhouse gas emission	Improvement in water efficiency	Changed attitudes on dangers of underage drinking	% Female leaders	% Ethnically diverse leaders	Cumulative free cash flow	Relative TSR
Weighting	40%	40%	5%	5%	5%	2.5%	2.5%	50%	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

20% of DLTIP awards will vest at threshold, with vesting up to 100% if the maximum level of performance is achieved. As explained in the

remuneration policy table, one performance share is deemed equal in value at grant to three share options.


Executive Director	Date of grant	Plan	Share type	Awards made during the year	Exercise price	Face value $'000	Face value (% of salary)
Ivan Menezes	03/09/2021	DLTIP - share options	ADR	36,675	$194.75	$6,417	375%
Ivan Menezes	03/09/2021	DLTIP - performance shares	ADR	36,675	—	$6,417	375%
Lavanya Chandrashekar	03/09/2021	DLTIP - share options	ADR	20,060	$194.75	$3,510	360%
Lavanya Chandrashekar	03/09/2021	DLTIP - performance shares	ADR	20,060	—	$3,510	360%

The 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	123

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	Number of shares/ options at 30 June 2022
Ivan Menezes
DLTIP – share options10	Sep 2015	2015-2018	2018	ADR		$104.93	29,895		29,895			0
DLTIP – share options10	Sep 2016	2016-2019	2019	ADR		$113.66	39,734		39,734			0
DLTIP – share options3	Sep 2017	2017-2020	2020	ADR		$134.06	14,098					14,098
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	42,848				38,564	4,284
Total vested but unexercised share options in Ords2												73,528
DLTIP - share options4,5	Sep 2019	2019-2022	2022	ADR		$170.28	38,827					38,827
DLTIP - share options6	Sep 2020	2020-2023	2023	ADR		$133.88	43,377					43,377
DLTIP - share options7	Sep 2021	2021-2024	2024	ADR		$194.75	0	36,675				36,675
Total unvested share options subject to performance in Ords2												475,516
DLTIP - performance shares8	Sep 2018	2018-2021	2021	ADR	$139.41		42,848		12,554	701	30,294	0
DLTIP - performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		38,827					38,827
DLTIP - performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		43,377					43,377
DLTIP - performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97		0	36,675				36,675
Total unvested shares subject to performance in Ords2												475,516
Lavanya Chandrashekar
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	3,832					3,832
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	1,064					1,064
Total vested but unexercised share options in Ords2												19,584
DLTIP – share options7	Sep 2021	2021-2024	2024	ADR		$194.75		20,060				20,060
Total unvested share options subject to performance in Ords2												80,240
DLTIP – performance shares	Sep 2018	2018-2021	2021	ADR	$139.41		1,593		503	28	1,090	0
DLTIP – performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		1,444					1,444
DLTIP – performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		1,827					1,827
DLTIP – performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97			20,060				20,060
Total unvested shares subject to performance in Ords2												93,324
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		766		766			0
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		1,774		1,774			0
DLTIP – restricted stock units	Sep 2019	2019-2022	2022	ADR	$174.72		1,567					1,567
DLTIP – restricted stock units	Sep 2020	2020-2023	2023	ADR	$133.70		2,635					2,635
Total unvested shares not subject to performance in Ords2,9												16,808

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

of 10 years after the date of grant.

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

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).

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

retention period.

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' remuneration report continued


124	Diageo Annual Report 2022

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.


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

Notes

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

2. Any change in shareholding between the end of the financial year on 30 June 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.

Relative importance of spend on pay – percentage change


Distributions to shareholders 127.3%	Staff pay 13.2%


	Diageo Annual Report 2022	125

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.


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

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

2. % of maximum opportunity

Pay for Directors in the context of wider workforce remuneration

There is clear alignment in the approach to pay for executives and the wider workforce in the way that remuneration principles are followed, as well

as the mechanics of the salary review process and incentive plan design, which are broadly consistent throughout the organisation. There is a strong

focus on performance-related pay, and the performance measures under the annual incentive plan and long-term incentive plan are the same for

executives and other eligible employees. The reward package for Executive Directors is consistent with that of the senior management population,

however, a much higher proportion of total remuneration for the Executive Directors is linked to business performance, compared to the rest of the

employee population.

The structure of the reward package for the wider employee population is based on the principle that it should enable Diageo to attract and retain

the best talent within our broader industry. It is driven by local market practice, as well as level of seniority and accountability, reflecting the global

nature of our business. Diageo is committed to fostering an inclusive and diverse workplace, and creating a culture where every individual can

thrive. Reflective of this, pay parity and consistency of treatment for all employees are critical to the reward practices across the organisation. The

reward framework is regularly reviewed to ensure employees are rewarded fairly and appropriately, in line with the business strategy, performance

outcomes, competitive market practice and our diversity agenda.

CEO pay ratio

In accordance with The Companies (Miscellaneous Reporting) Regulations 2018, the table 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.

Directors' remuneration report continued


126	Diageo Annual Report 2022


Year	Method	25th percentile pay ratio	Median pay ratio	75th percentile pay ratio
2019	Option A2	265:1	208:1	166:1
2020 1	Option A2	50:1	38:1	31:1
2021	Option A2	127:1	100:1	79:1
2022	Option A2	157:1	122:1	96:1
2022	Total pay and benefits	£50,260	£64,627	£81,888
2022	Salary	£30,765	£43,920	£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.


	Diageo Annual Report 2022	127

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
	2022			2021			2020
	Salary	Bonus	Benefits	Salary	Bonus	Benefits	Salary	Bonus	Benefits
Plc employee average1	11.1%	25.8%	10.5%	5.1%	N/A	38.8%	7.5%	(100.0%)	9.0%
Average global employee2	6.4%	38.4%	11.7%	—%	278.8	12.6	5.3%	(67.8)	6.9%
Executive Directors3
Ivan Menezes8	2.3%	4.4%	59.5%	0.7%	N/A5	(10.7%)	2.7%	(100.0%)	0.8%
Lavanya Chandrashekar	N/A5	N/A5	N/A5	N/A5	N/A5	N/A	N/A	N/A	N/A
Non-Executive Directors4
Melissa Bethell	2.3%	—	16.0%	N/A5	—	—	—	—	—
Valérie Chapoulaud-Floquet6	—	—	—	N/A5	—	—	—	—	—
Javier Ferrán (Chairman)	8.3%	—	28.8%	0.0%	—	0.0%	0.0%	—	0.0%
Susan Kilsby7	3.8%	—	300.0%	9.6%	—	(87.7%)	37.3%	—	68.9%
Sir John Manzoni6	—	—	—	—	—	—	—	—	—
Lady Mendelsohn	2.3%	—	0.0%	3.2%	—	0.0%	3.3%	—	0.0%
Alan Stewart	4.7%	—	0.0%	2.4%	—	0.0%	2.5%	—	0.0%
Ireena Vittal6	—	—	—	—%	—	0.0%	—%	—	0.0%
Karen Blackett	N/A5	—	N/A5	—	—	—	—	—	—

1. Around 50 UK-based employees are employed by Diageo plc. Their remuneration has been calculated in line with the approach used for the CEO pay-ratio calculation and the average

year-on-year change has been reported. Only those employed during the full financial year have been included in calculations.

2. Calculated by dividing staff cost related to salaries, bonus and benefits by the average number of employees on a full-time equivalent basis, as disclosed in note 3c to the financial

statement under staff costs and average number of employees 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).

Directors' remuneration report continued


128	Diageo Annual Report 2022

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.


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

Non-Executive Directors’ remuneration for the year ended 30 June 2022 (audited)


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

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.


	Diageo Annual Report 2022	129

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.


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

Annual incentive design for the year ending

30 June 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.

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

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.


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

Performance conditions for long-term incentive awards to be made in the year ending 30 June 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	% Ethnically diverse leaders	Vesting schedule	Relative Total Shareholder Return	Cumulative free cash flow (£m)	Vesting schedule
Weighting (% total)	40%	40%	5%	5%	5%	2.5%	2.5%	100%	50.0%	50.0%	100%
Maximum	8.5%	12.0%	17.6%	12.1%	4.0m	47%	44%	100%	3rd and above	£9,450	100%
Midpoint	6.5%	8.5%	14.2%	9.2%	3.3m	46%	43%	60%	—	£8,550	60%
Threshold	4.5%	5.0%	10.7%	6.3%	2.6m	45%	42%	20%	9th and above	£7,650	20%

1.Further context for the 2022 long-term incentive greenhouse gas reduction targets is set out on page 31.

Directors' remuneration report continued


130	Diageo Annual Report 2022

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 (£)	Exercise period
Ivan Menezes	549,044	30.67	2020-2031
Lavanya Chandrashekar	99,824	33.73	2021-2031
Other1	1,349,935	30.14	2015-2031

1. Other members of the Executive Committee

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.

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.


	Diageo Annual Report 2022	131

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

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

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


132	Diageo Annual Report 2022

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

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	133

•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.

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


134	Diageo Annual Report 2022

Other information

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


Information (including that required by UK Listing Authority Listing Rule 9.8.4)	Location in Annual Report
Agreements with controlling shareholders	Not applicable
Contracts of significance	Not applicable
Details of long-term incentive schemes	Directors’ remuneration report
Directors’ indemnities and compensation	Directors’ remuneration report - Additional information; Consolidated financial statements - note 21 Related party transactions
Dividends	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	Consolidated financial statements - note 23 Post balance sheet events
Financial risk management	Consolidated financial statements - note 16 Financial instruments and risk management
Future developments	Chairman’s statement; Chief Executive’s statement; Our market dynamics
Greenhouse gas emissions	Sustainability performance; Responding to climate-related risks; Additional information for shareholders - External limited assurance of selected ESG performance data
Interest capitalised	Not applicable
Non-pre-emptive issues of equity for cash (including in respect of major unlisted subsidiaries)	Not applicable
Parent participation in a placing by a listed subsidiary	Not applicable
Political donations	Corporate governance report
Provision of services by a controlling shareholder	Not applicable
Publication of unaudited financial information	Unaudited financial information
Purchase of own shares	Repurchase of shares; Consolidated financial statements - note 18 Equity
Research and development	Additional Disclosures - Research and development; Consolidated financial statements - note 3 Operating costs
Review of the business and principal risks and uncertainties	Chief Executive’s statement; Our principal risks and risk management; Responding to climate-related risks; Business reviews
Share capital - structure, voting and other rights	Consolidated financial statements - note 18 Equity
Share capital - employee share plan voting rights	Consolidated financial statements - note 18 Equity
Shareholder waivers of dividends	Consolidated financial statements - note 18 Equity
Shareholder waivers of future dividends	Consolidated financial statements - note 18 Equity
Sustainability and responsibility	Sustainability performance; Responding to climate-related risks
Waiver of emoluments by a director	Not applicable
Waiver of future emoluments by a director	Not applicable

The Directors’ report of Diageo plc for the year ended 30 June 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.


	Diageo Annual Report 2022	135

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 plc137

Primary statements

Consolidated income statement145

Consolidated statement of comprehensive income146

Consolidated balance sheet147

Consolidated statement of changes in equity148

Consolidated statement of cash flows149

Accounting information and policies

1. Accounting information and policies150

Results for the year

2. Segmental information152

3. Operating costs155

4. Exceptional items156

5. Finance income and charges158

6. Investments in associates and joint ventures158

7. Taxation160

Operating assets and liabilities

8. Acquisition and sale of businesses and brands

and purchase of non-controlling interests163

9. Intangible assets166

10. Property, plant and equipment170

11. Biological assets171

12. Leases171

13. Other investments172

14. Post employment benefits172

15. Working capital177

Risk management and capital structure

16. Financial instruments and risk management179

17. Net borrowings186

18. Equity187

Other financial statements disclosures

19. Contingent liabilities and legal proceedings191

20. Commitments193

21. Related party transactions193

22. Principal group companies194

23. Post balance sheet events194

Financial statements of the company195

Unaudited financial information205


136	Diageo Annual Report 2022

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;


	Diageo Annual Report 2022	137

•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.


138	Diageo Annual Report 2022

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.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:


	Group	Company
Overall materiality	£239m (2021: £184m).	£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.
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.	0.5% of net assets. This approach has not changed compared to the prior year.
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.	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;

•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.


	Diageo Annual Report 2022	139

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;


140	Diageo Annual Report 2022

•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.

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

27July 2022


	Diageo Annual Report 2022	141

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	2022	2021
Goodwill	£2,287m	£1,957m
Brands	£7,896m	£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.
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


142	Diageo Annual Report 2022


Uncertain tax positions in respect of direct and indirect taxes
Nature of the Key Audit Matter
Impacted FSLIs	2022	2021
Current tax assets	£149m	£145m
Current tax liabilities	£252m	£146m
Provision for tax uncertainties	£156m	£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


	Diageo Annual Report 2022	143


Valuation of post employment benefit liabilities
Nature of the Key Audit Matter
Impacted FSLI	2022	2021
Post employment benefit plan liabilities (Group)	£7,234m	£9,445m
Post employment benefit plan liabilities (Company)	£4,897m	£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)


144	Diageo Annual Report 2022

Consolidated income statement


		Year ended 30 June 2022	Year ended 30 June 2021	Year ended 30 June 2020
	Notes	£ million	£ million	£ million
Sales	2	22,448	19,153	17,697
Excise duties	3	(6,996)	(6,420)	(5,945)
Net sales	2	15,452	12,733	11,752
Cost of sales	3	(5,973)	(5,038)	(4,654)
Gross profit		9,479	7,695	7,098
Marketing	3	(2,721)	(2,163)	(1,841)
Other operating items	3	(2,349)	(1,801)	(3,120)
Operating profit		4,409	3,731	2,137
Non-operating items	4	(17)	14	(23)
Finance income	5	497	278	366
Finance charges	5	(919)	(651)	(719)
Share of after tax results of associates and joint ventures	6	417	334	282
Profit before taxation		4,387	3,706	2,043
Taxation	7	(1,049)	(907)	(589)
Profit for the year		3,338	2,799	1,454

Attributable to:
Equity shareholders of the parent company		3,249	2,660	1,409
Non-controlling interests		89	139	45
		3,338	2,799	1,454

Weighted average number of shares		million	million	million
Shares in issue excluding own shares		2,318	2,337	2,346
Dilutive potential ordinary shares		7	8	8
		2,325	2,345	2,354

		pence	pence	pence
Basic earnings per share		140.2	113.8	60.1
Diluted earnings per share		139.7	113.4	59.9

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


	Diageo Annual Report 2022	145

Consolidated statement of comprehensive income


		Year ended 30 June 2022	Year ended 30 June 2021	Year ended 30 June 2020
	Notes	£ million	£ million	£ million
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment benefit plans
Group	14	616	16	38
Associates and joint ventures		5	3	(14)
Non-controlling interests	14	(1)	—	—
Tax on post employment benefit plans		(123)	(46)	(21)
Changes in the fair value of equity investments at fair value through other comprehensive income		(12)	—	—
		485	(27)	3
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group		1,128	(1,233)	(104)
Associates and joint ventures	6	60	(240)	82
Non-controlling interests		171	(173)	(37)
Net investment hedges		(623)	810	(227)
Exchange loss recycled to the income statement
On disposal of foreign operations	8	63	—	4
Tax on exchange differences – group		(6)	(9)	4
Tax on exchange differences – non-controlling interests		—	(1)	—
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group		233	(298)	221
Transaction exposure hedging of the group		(172)	101	(43)
Hedges by associates and joint ventures		(15)	(1)	6
Commodity price risk hedging of the group		78	41	(11)
Recycled to income statement – hedge of foreign currency debt of the group		(239)	175	(75)
Recycled to income statement – transaction exposure hedging of the group		42	10	42
Recycled to income statement – commodity price risk hedging of the group		(46)	(2)	8
Tax on effective portion of changes in fair value of cash flow hedges		32	(6)	(23)
Hyperinflation adjustments		365	(17)	(18)
Tax on hyperinflation adjustments	7	(74)	5	4
		997	(838)	(167)
Other comprehensive income/(loss), net of tax, for the year		1,482	(865)	(164)
Profit for the year		3,338	2,799	1,454
Total comprehensive income for the year		4,820	1,934	1,290

Attributable to:
Equity shareholders of the parent company		4,561	1,969	1,282
Non-controlling interests	18	259	(35)	8
Total comprehensive income for the year		4,820	1,934	1,290

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


146	Diageo Annual Report 2022

Consolidated balance sheet


		30 June 2022		30 June 2021
	Notes	£ million	£ million	£ million	£ million
Non-current assets
Intangible assets	9	11,902		10,764
Property, plant and equipment	10	5,848		4,849
Biological assets	11	94		66
Investments in associates and joint ventures	6	3,652		3,308
Other investments	13	37		40
Other receivables	15	37		36
Other financial assets	16	345		327
Deferred tax assets	7	114		100
Post employment benefit assets	14	1,553		1,018
			23,582		20,508
Current assets
Inventories	15	7,094		6,045
Trade and other receivables	15	2,933		2,385
Corporate tax receivables	7	149		145
Assets held for sale	8	222		—
Other financial assets	16	251		121
Cash and cash equivalents	17	2,285		2,749
			12,934		11,445
Total assets			36,516		31,953
Current liabilities
Borrowings and bank overdrafts	17	(1,522)		(1,862)
Other financial liabilities	16	(444)		(257)
Share buyback liability	18	(117)		(91)
Trade and other payables	15	(5,887)		(4,648)
Liabilities held for sale	8	(61)		—
Corporate tax payables	7	(252)		(146)
Provisions	15	(159)		(138)
			(8,442)		(7,142)
Non-current liabilities
Borrowings	17	(14,498)		(12,865)
Other financial liabilities	16	(703)		(384)
Other payables	15	(380)		(338)
Provisions	15	(258)		(274)
Deferred tax liabilities	7	(2,319)		(1,945)
Post employment benefit liabilities	14	(402)		(574)
			(18,560)		(16,380)
Total liabilities			(27,002)		(23,522)
Net assets			9,514		8,431
Equity
Share capital	18	723		741
Share premium		1,351		1,351
Other reserves		2,174		1,621
Retained earnings		3,550		3,184
Equity attributable to equity shareholders of the parent company			7,798		6,897
Non-controlling interests	18		1,716		1,534
Total equity			9,514		8,431

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

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.


	Diageo Annual Report 2022	147

Consolidated statement of changes in equity


				Other reserves		Retained earnings/(deficit)
	Notes	Share capital £ million	Share premium £ million	Capital redemption reserve £ million	Hedging and exchange reserve £ million	Own shares £ million	Other retained earnings £ million	Total £ million	Equity attributable to parent company shareholders £ million	Non- controlling interests £ million	Total equity £ million
At 30 June 2019		753	1,350	3,190	(818)	(2,026)	5,912	3,886	8,361	1,795	10,156
Profit for the year		—	—	—	—	—	1,409	1,409	1,409	45	1,454
Other comprehensive loss		—	—	—	(116)	—	(11)	(11)	(127)	(37)	(164)
Total comprehensive (loss)/ income for the year		—	—	—	(116)	—	1,398	1,398	1,282	8	1,290
Employee share schemes		—	—	—	—	90	(36)	54	54	—	54
Share-based incentive plans	18	—	—	—	—	—	2	2	2	—	2
Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans		—	—	—	—	—	1	1	1	—	1
Share-based payments and purchase of treasury shares in respect of subsidiaries		—	—	—	—	—	(1)	(1)	(1)	—	(1)
Shares issued		—	1	—	—	—	—	—	1	—	1
Transfers		—	—	—	5	—	(5)	(5)	—	—	—
Purchase of non-controlling interests	8	—	—	—	—	—	(39)	(39)	(39)	(23)	(62)
Non-controlling interest in respect of new subsidiary		—	—	—	—	—	—	—	—	5	5
Change in fair value of put option		—	—	—	—	—	9	9	9	—	9
Share buyback programme		(11)	—	11	—	—	(1,256)	(1,256)	(1,256)	—	(1,256)
Dividend declared for the year		—	—	—	—	—	(1,646)	(1,646)	(1,646)	(117)	(1,763)
At 30 June 2020		742	1,351	3,201	(929)	(1,936)	4,343	2,407	6,772	1,668	8,440
Profit for the year		—	—	—	—	—	2,660	2,660	2,660	139	2,799
Other comprehensive loss		—	—	—	(652)	—	(39)	(39)	(691)	(174)	(865)
Total comprehensive (loss)/income for the year		—	—	—	(652)	—	2,621	2,621	1,969	(35)	1,934
Employee share schemes		—	—	—	—	59	(10)	49	49	—	49
Share-based incentive plans	18	—	—	—	—	—	49	49	49	—	49
Share-based incentive plans in respect of associates		—	—	—	—	—	3	3	3	—	3
Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9
Purchase of non-controlling interests	8	—	—	—	—	—	(15)	(15)	(15)	(27)	(42)
Associates' transactions with non-controlling interests		—	—	—	—	—	(91)	(91)	(91)	—	(91)
Change in fair value of put option		—	—	—	—	—	(2)	(2)	(2)	—	(2)
Share buyback programme		(1)	—	1	—	—	(200)	(200)	(200)	—	(200)
Dividend declared for the year	18	—	—	—	—	—	(1,646)	(1,646)	(1,646)	(72)	(1,718)
At 30 June 2021		741	1,351	3,202	(1,581)	(1,877)	5,061	3,184	6,897	1,534	8,431
Adjustment to 2021 closing equity in respect of hyperinflation in Turkey		—	—	—	—	—	251	251	251	—	251
Adjusted opening balance		741	1,351	3,202	(1,581)	(1,877)	5,312	3,435	7,148	1,534	8,682
Profit for the year		—	—	—	—	—	3,249	3,249	3,249	89	3,338
Other comprehensive income		—	—	—	535	—	777	777	1,312	170	1,482
Total comprehensive income for the year		—	—	—	535	—	4,026	4,026	4,561	259	4,820
Employee share schemes		—	—	—	—	39	50	89	89	—	89
Share-based incentive plans	18	—	—	—	—	—	59	59	59	—	59
Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9
Share-based payments and purchase of own shares in respect of subsidiaries		—	—	—	—	—	(11)	(11)	(11)	(6)	(17)
Unclaimed dividend		—	—	—	—	—	3	3	3	1	4
Change in fair value of put option		—	—	—	—	—	(34)	(34)	(34)	—	(34)
Share buyback programme		(18)	—	18	—	—	(2,310)	(2,310)	(2,310)	—	(2,310)
Dividend declared for the year	18	—	—	—	—	—	(1,720)	(1,720)	(1,720)	(72)	(1,792)
At 30 June 2022		723	1,351	3,220	(1,046)	(1,838)	5,388	3,550	7,798	1,716	9,514

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


148	Diageo Annual Report 2022

Consolidated statement of cash flows


		Year ended 30 June 2022		Year ended 30 June 2021		Year ended 30 June 2020
	Notes	£ million	£ million	£ million	£ million	£ million	£ million
Cash flows from operating activities
Profit for the year		3,338		2,799		1,454
Taxation		1,049		907		589
Share of after tax results of associates and joint ventures		(417)		(334)		(282)
Net finance charges		422		373		353
Non-operating items		17		(14)		23
Operating profit			4,409		3,731		2,137
Increase in inventories		(740)		(443)		(366)
(Increase)/decrease in trade and other receivables		(378)		(446)		523
Increase/(decrease) in trade and other payables and provisions		939		1,220		(485)
Net (increase)/decrease in working capital			(179)		331		(328)
Depreciation, amortisation and impairment		828		447		1,839
Dividends received		190		290		4
Post employment payments less amounts included in operating profit		(89)		(30)		(109)
Other items		53		88		(14)
			982		795		1,720
Cash generated from operations			5,212		4,857		3,529
Interest received		110		89		185
Interest paid		(438)		(440)		(493)
Taxation paid		(949)		(852)		(901)
			(1,277)		(1,203)		(1,209)
Net cash inflow from operating activities			3,935		3,654		2,320
Cash flows from investing activities
Disposal of property, plant and equipment and computer software		17		13		14
Purchase of property, plant and equipment and computer software		(1,097)		(626)		(700)
Movements in loans and other investments		(72)		(4)		—
Sale of businesses and brands	8	82		14		11
Acquisition of businesses	8	(271)		(488)		(130)
Net cash outflow from investing activities			(1,341)		(1,091)		(805)
Cash flows from financing activities
Share buyback programme	18	(2,284)		(109)		(1,282)
Proceeds from issue of share capital		—		—		1
Net sale of own shares for share schemes		18		49		54
Purchase of treasury shares in respect of subsidiaries		(15)		—		—
Dividends paid to non-controlling interests		(81)		(77)		(111)
Proceeds from bonds	17	2,263		1,031		5,188
Repayment of bonds	17	(1,521)		(1,247)		(820)
Purchase of shares of non-controlling interests	8	—		(42)		(62)
Cash inflow from other borrowings(1)		503		34		497
Cash outflow from other borrowings(1)		(424)		(787)		(782)
Equity dividends paid		(1,718)		(1,646)		(1,646)
Net cash (outflow)/inflow from financing activities			(3,259)		(2,794)		1,037
Net (decrease)/increase in net cash and cash equivalents	17		(665)		(231)		2,552
Exchange differences			239		(285)		(120)
Net cash and cash equivalents at beginning of the year			2,637		3,153		721
Net cash and cash equivalents at end of the year			2,211		2,637		3,153

Net cash and cash equivalents consist of:
Cash and cash equivalents	17		2,285		2,749		3,323
Bank overdrafts	17		(74)		(112)		(170)
			2,211		2,637		3,153

(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	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.

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