Diageo 2016-2015

Annual Report 2016
2016
PERFORMANCE
HIGHLIGHTS
Volume Net sales(i) Operating profit
Reported movement 0.1% Reported movement 3.0% Reported movement 1.6%
Organic movement 1.3% Organic movement 2.8% Organic movement 3.5%
2016 EU246.4m 2016 £10,485m 2016 £2,841m

2015 EU246.2m 2015 £10,813m 2015 £2,797m
Equivalent units (EU)
Net cash from operating activities Earnings per share (eps) Total recommended dividend
2016 decline of £3m Reported movement 6% per share(iii)
2016 free cash flow(ii) £2,097m 134m Eps before exceptional items movement 1% 5%
2016 £2,548m 2016 89.5p 2016 59.2p

2015 £2,551m 2015 95.0p 2015 56.4p
Alcohol in society Health and safety Water efficiency(V)
2016 335 2016

1.44Δ 2016
5.1l/lΔ
2015 298 2015 1.66 2015 5.8l/l
Reach and impact of responsible drinking Lost-time accident frequency(iv)

programmes
(i) Net sales are sales less excise duties. See definition on page 102. (ii) Free cash flow is a non-GAAP financial measure. See definition and reconciliation to net cash from operating
activities on page 53. (iii) Includes recommended final dividend of 36.6p. (iv) Per 1,000 full-time employees. (v) Data for the period ended 30 June 2015 has been restated in
accordance with Diageo’s environmental reporting methodologies. Δ Within PwC’s independent limited assurance scope. For further detail and the reporting methodologies,
see our Sustainability & Responsibility Performance Addendum 2016.
NORTH EUROPE, RUSSIA AFRICA LATIN AMERICA ASIA

AMERICA AND TURKEY AND CARIBBEAN PACIFIC
Volume Volume Volume Volume Volume
EU47.0m
Reported: 1%
EU43.9m
Reported: flat
EU31.3m
Reported: 19%
EU20.6m
Reported: 5%
EU103.6m
Reported: 3%
Organic: 1% Organic: 2% Organic: 9% Organic: 2% Organic: flat
Net sales (i)
Net sales (i)
Net sales (i)
Net sales (i)
Net sales(i)
£3,565m
Reported: 3%
£2,544m
Reported: 3%
£1,401m
Reported: 1%
£863m
Reported: 16%
£2,076m
Reported: 6%
Organic: 3% Organic: 4% Organic: 3% Organic: 1% Organic: 2%
Operating profit(ii) Operating profit(ii) Operating profit(ii) Operating profit(ii) Operating profit(ii)
£1,551m
Reported: 7%
£801m
Reported: flat
£212m
Reported: 33%
£199m
Reported: 24%
£395m
Reported: 11%
Organic: 4% Organic: 6% Organic: 11% Organic: 1% Organic: 13%
Read more: pages 28–29 Read more: pages 30–31 Read more: pages 32–33 Read more: pages 34–35 Read more: pages 36–37
(i) Does not include corporate net sales of £36 million (2015 – £80 million). (ii) Excluding exceptional operating charges of £167 million (2015 – £269 million) and corporate
and ISC costs before exceptional items of £150 million (2015 – £123 million).
Diageo in 2016 DIAGEO Annual Report 2016 01
DIAGEO IN 2016
Strategic report
Diageo is a global leader in beverage alcohol with an outstanding
collection of brands across spirits and beer.
Our products are sold in more than 180 countries around the world.
Our brands include Johnnie Walker, Crown Royal, JεB, Buchanan’s and
Windsor whiskies, Smirnoff, Cîroc and Ketel One vodkas, Captain Morgan,
Baileys, Don Julio, Tanqueray and Guinness.
Our ambition is to be one of the best performing, most trusted
and respected consumer products companies in the world.
Governance
We are proud of the brands we make and the enjoyment they give to millions.
We are passionate about alcohol playing a positive role in society as part of a
balanced lifestyle. This is central to our purpose to help people celebrate life.
For more information about Diageo, our people and our brands, visit www.diageo.com.
Visit Diageo’s global responsible drinking resource, www.DRINKiQ.com, for information, initiatives, and ways to share best practice.
In addition, Diageo has prepared a Sustainability & Responsibility Performance Addendum 2016, which is available on www.diageo.com. It outlines
further economic, social and environmental disclosures in line with the Global Reporting Initiative Sustainability G4 Guidelines and the United Nations
Global Compact advanced reporting criteria.
Cover image Johnnie Walker Black Label on the

bottling line at Shieldhall, one of our two packaging sites
Contents
in Scotland. Johnnie Walker Black Label is created using
Strategic report
Financial statements
only whiskies aged for a minimum of 12 years from
the four corners of Scotland. — Our business 02
— Our global reach 03
Diageo is listed on both the London Stock Exchange (DGE) and the New York Stock — Our brands 04
Exchange (DEO).
This is the Annual Report 2016 of Diageo plc for the year ended 30 June 2016 and it is
— Breadth and depth across price points 05
dated 28 July 2016. The Annual Report is made available to all shareholders on Diageo’s — Our strategy 06
website (www.diageo.com). — Our business model 07
This report includes names of Diageo’s products, which constitute trademarks or — How we measure performance: key performance indicators 08
trade names which Diageo owns or which others own and license to Diageo for use.
In this report, the term ‘company’ refers to Diageo plc and the terms ‘group’ and ‘Diageo’ refer — Chairman’s statement 10
to the company and its consolidated subsidiaries, except as the context otherwise requires. — Chief Executive’s statement 12
Diageo’s consolidated financial statements have been prepared in accordance with — Market dynamics 14
International Financial Reporting Standards (IFRS) as adopted for use in the European
Union (EU) and IFRS as issued by the International Accounting Standards Board (IASB). — How we will deliver our Performance Ambition 16
References to IFRS hereafter should be construed as references to both IFRS, as adopted — How we protect our business: risk management and principal risks 19
by the EU, and IFRS, as issued by the IASB. Unless otherwise indicated, all financial
information contained in this document has been prepared in accordance with IFRS.
— Group financial review 22
Unless otherwise stated in this document, percentage movements refer to organic
— Business reviews 28
movements which are non-GAAP financial measures. For a definition of organic — Category review 38 Additional information for shareholders
movement and reconciliations of non-GAAP measure to GAAP measures see page 50. — Sustainability & Responsibility review 40
Share, unless otherwise stated, refers to value share. Unless otherwise stated in this
document, the percentage figures presented are reflective of a year-on-year — Definitions and reconciliations of non-GAAP measures
comparison, namely 2015-2016, only. to GAAP measures 50
The brand ranking information presented in this report, when comparing information
with competitors, reflects data published by sources such as IWSR, Impact Databank, Governance
Nielsen, Beverage Information Group and Plato Logic. Market data information and
competitive set classifications are taken from independent industry sources in the — Board of Directors and Company Secretary 56
markets in which Diageo operates. — Executive Committee 57
© Diageo plc 2016 — Corporate governance report 58
Diageo plc is incorporated as a public limited company in England and Wales. Diageo — Report of the Audit Committee 63
was incorporated as Arthur Guinness Son and Company Limited on 21 October 1886. — Directors’ remuneration report 66
The group was formed by the merger of Grand Metropolitan Public Limited Company
(GrandMet) and Guinness PLC (the Guinness Group) in December 1997. Diageo plc’s — Directors’ report 86
principal executive office is located at Lakeside Drive, Park Royal, London NW10 7HQ
and its telephone number is +44 (0) 20 8978 6000.
Financial statements 88
Cautionary statement: this document contains ‘forward-looking’ statements.
For our full cautionary statement, please see on page 156. Additional information for shareholders 154
02 DIAGEO Annual Report 2016 Our business
OUR BUSINESS Diageo has built a strong platform for

growth. We have grown through investment
in our brands, and by acquisition to broaden
Diageo is a global leader in beverage alcohol with our geographical footprint and category
iconic brands across spirits and beer. We truly depth and range.
Our 21 market model(i) has established
understand the consumer and have world-class strong local business units, well positioned
to win in increasingly competitive and fast
marketing and innovation skills to build powerful paced operating environments.
We want to make a positive contribution
brands that play a positive role in society. – to society, to communities, to individuals,
and to the environment – while continuing
to prosper as a business. We actively create
the shared value that is part of our heritage,
and essential to our future.
Strength through global reach and iconic brands Doing business the right way
We build global brands alongside For us, standards are everything, from how
local stars. These brands have broad we produce and market our brands, to how we
consumer appeal across geographies to innovate and sell, and in governance and ethics
meet demand now and in the future. as codified in our Code of Business Conduct.
We produce We innovate We market We sell
We produce our brands Innovation is a mindset For decades our brands have Everyone at Diageo sells or
from more than 150 sites in driving everything we do and been at the forefront of understands how they can
around 30 countries. We are an important growth engine marketing innovation and help sell. This is just one
committed to efficient, for our business. We combine the same remains true today. expression of the sales-led
sustainable production to our world-leading technical We invest in world-class organisation we are building.
the highest quality standards. and research capability with marketing to build our brands, We work to extend our
Our export-led International investments in smaller start-ups. focused on programmes which sales reach by ensuring our
Supply Centre (ISC) employs We partner with entrepreneurs recruit and re-recruit consumers. products are available where
over 4,000 people across more to actively experiment in digital We take our obligations to people want them and
than 55 sites in Scotland, technology, new business market responsibly and help by delivering memorable
England, Ireland, Italy and models and partnerships consumers make informed consumer experiences.
the Netherlands. to solve business issues and decisions seriously.
unlock new opportunities.
Our role in society

Everywhere we operate, we set our purpose – celebrating life, provide the information entrepreneurship, employability
out to have a positive impact every day, everywhere. We are consumers need to make and skills; improving access
on the world around us. Doing also committed to tackling informed decisions. to clean water, sanitation
so is good for our business, for alcohol misuse through effective Our distilleries and breweries and hygiene; and helping
our communities and for our programmes that prevent and are at the very heart of the to empower women.
consumers. reduce alcohol misuse, and work communities in which we work, By reducing carbon
At the core of our approach with others to raise awareness which gives us an opportunity to packaging, water and waste
is a commitment to create a and change people’s attitudes create shared value. To do this, we now, we are reducing our
positive role for alcohol in and behaviour. We market our work hard to increase access to environmental impact to
society. This is fundamental to products responsibly and opportunity through: enabling support future opportunities.
(i) Throughout this Annual Report 2016, reference to Diageo’s 21 geographically based markets are stated as ‘21 markets’.
Our global reach DIAGEO Annual Report 2016 03
OUR Diageo is the leading spirits player in every
Strategic report
region of the world. This regional profile
GLOBAL provides us with exposure to the greatest
REACH consumer growth opportunities in our sector.
We operate as 21 geographically based markets
around the world and have a presence in over
180 countries. We employ more than 32,000
talented people across our global business.
Governance
% Share of net sales by our 21 markets(i)
Our 21 markets
Each of our 21 markets is accountable for US Spirits
its own performance and for driving growth Diageo-Guinness USA (DGUSA)
Canada
Europe
Asia Pacific Turkey
North America Russia
East Africa
Africa Regional Markets
Nigeria
South Africa
Diageo West LAC
Latin America
and Caribbean net sales Paraguay, Uruguay and Brazil
Mexico
Colombia
Venezuela
India
Africa
Australia
Europe, South East Asia
Russia and Turkey Global Travel Asia and Middle East
North Asia
(i) Based on reported net sales for the year ended 30 June 2016. Greater China
Does not include corporate net sales of £36 million.
Diageo reports as five regions
North America Europe, Russia Africa Latin America Asia Pacific

and Turkey and Caribbean
Additional information for shareholders
% Share by region
Volume (%) 19.1 17.8 12.7 8.4 42.0
Net sales(i) (%) 34.1 24.3 13.4 8.3 19.9
Operating profit before exceptional items(ii) (%) 49.1 25.4 6.7 6.3 12.5
Operating profit(iii) (%) 51.8 26.8 7.1 2.7 11.6
Number of responsible drinking
programmes (%) 21.2 25.4 15.6 15.7 22.1
Water withdrawals(iv) (%) 10.0 38.2 37.8 1.8 12.2
Carbon emissions(iv) (%) 6.7 42.7 37.4 2.3 10.9
Number of employees(v) (%) 9.0 33.5 16.5 9.8 31.2
(i) Does not include corporate net sales of £36 million. (ii) Excluding exceptional operating charges of £167 million (2015 – £269 million) and corporate and ISC costs before
exceptional items of £150 million (2015 – £123 million). (iii) Excluding corporate and ISC costs of £150 million (2015 – £139 million). (iv) Excludes corporate offices which account
for <2% of combined impacts. (v) Employees have been allocated to the region in which they reside.
04 DIAGEO Annual Report 2016 Our brands
OUR BRANDS Our portfolio spans consumer drinking

occasions. Using local market insights, our teams
are able to select the most relevant brands from
Our global reach is matched by our our global portfolio to meet the consumer
broad portfolio of international and opportunity in their market. All of our marketing
activities adhere to the Diageo Marketing Code
local brands. We own the top two largest to ensure our brands are marketed responsibly.
A selection of our brands are included in the
spirits brands in the world, Johnnie Walker table below.
and Smirnoff, and 20 of the world’s top

100 spirits brands.
Global giants(i)
Our business is anchored around our six biggest global brands.
Local stars Reserve
Can be individual to any one market, and provide Exceptional spirits brands at above-premium price points
a platform for our business to grow. to capture the global luxury opportunity.
Source: Impact Databank Value Ratings, May 2016. (i) Global giants represent 40% of Diageo net sales.
Breadth and depth across price points DIAGEO Annual Report 2016 05
BREADTH AND DEPTH We hold strong positions across all key
Strategic report
international spirits categories to serve consumer
ACROSS PRICE POINTS occasions and price points with our brands.
Our most strategically important category is
scotch. We have also established footholds in key
Our portfolio, well diversified across price emerging markets through participation in local
spirits categories: raki in Turkey, cachaça in Brazil,
tiers, enables us to participate where the local whisky in India, and a small position in the
consumer opportunity is greatest, and to baiju category in China.
capture shifts in consumer preference.
Ultra premium Super premium Premium Standard Value

Scotch whisky
Governance
North American
whisk(e)y
Vodka
Rum
®
Liqueur
Tequila
Gin
Local spirits
Beer
06 DIAGEO Annual Report 2016 Our strategy
OUR STRATEGY We aim to grow our participation in

international premium spirits, driven by
Our intent is to build breadth and depth
across drinking occasions by shaping
growth in both populations and incomes, consumer demand for our international
We pursue the following and the increasing penetration of spirits premium spirits brands. In developed markets
strategy to deliver our in emerging markets. To support this, we

participate in both beer and mainstream
our strategy is to drive premiumisation
through spirits price tiers up to our reserve
Performance Ambition: spirits selectively to deliver organisational
scale and distribution reach, and to shape
portfolio. In emerging markets our strategy is
to develop from an import-based premium
responsible drinking trends in markets spirits model to become a local player where
where international premium spirits is appropriate, participating in categories that
an emerging category. give us the scale and access to the fast
growing middle-class consumer. Everywhere
we operate, we do so in a responsible and
sustainable way.
Prioritised investment in: Targeted investment in:
Premium core spirits(i) Reserve Mainstream spirits(i) Beer

The brands at the core of our Exceptional spirits brands at Spirits-based brands priced at a Provides local scale and route
business that provide both above-premium price points to similar amount per serve to to consumer, with focused
scale and strong margin capture the global luxury mainstream beer or local spirits participation in markets where
contribution. opportunity. that enable us to shape local we have leadership positions.
spirits consumption.
Outcomes of our strategy
Efficient growth Credibility and trust

Consistent value creation Motivated people
We measure progress against our strategy using the following financial and non-financial indicators:
Organic net sales growth Return on average Reach and impact of Health and safety
Organic operating margin invested capital responsible drinking
E mployee
improvement Total shareholder return programmes
engagement index
Earnings per share before Water efficiency
exceptional items Carbon emissions
Free cash flow
See our key performance indicators (KPIs) pages: 8–9.

(i) Spirits include ready to drinks (RTDs).
Our business model DIAGEO Annual Report 2016 07
OUR BUSINESS MODEL We have structured our organisation into a
Strategic report
21 market business model, applying country-
specific strategies to meet local consumer
From our position as a global leader, we deliver and customer needs. This business model
returns for shareholders, while creating value enables us to identify and execute against
the most valuable growth opportunities,
for our customers and employees. In everything and also to supply our brands efficiently
and effectively using our global expertise,
we do, we set out to make a positive contribution while sourcing and producing locally where
optimal to do so. This market-driven business
to society. model helps us to capture consumer trends
early to deliver sustainable performance.
Governance
Global leader Agile business model Focused on:
Broad portfolio 21 markets Performance drivers
Read more: page 16.
Global reach Consumer insights
Financial strength Participation strategy Sustainability and
responsibility priorities
Efficient supply and procurement Supply resources Read more: page 16
Leading capabilities Global functions

Values Global functions
Our role in society
Broad portfolio: we have world-leading Consumer insights: in-market consumer Performance drivers: we have identified six
brands across categories and price points. insight teams are able to identify trends more performance drivers which are key to improving
accurately and quickly, delivering more locally execution and achieving our aims: premium
Global reach: we have global reach through
relevant solutions. core brands; reserve; innovation; route to
the breadth and depth of our global and
consumer; cost and productivity; and talent.
local brands. Participation strategy: flexibility to select
Each market focuses on the priorities that will
the best portfolio of brands that capture the
Financial strength: our competitive drive performance in that market.
unique consumer opportunity that exists
advantage is reflected by our strong financial
in each specific market and then to invest Sustainability and responsibility priorities:
returns and consistent financial performance.
directly against the largest identified growth every business decision, every operation,
Efficient supply and procurement: across opportunities. Each market is able to deploy and every programme and initiative must
the world we have efficiency in supply and a customised combination of global and work towards our three sustainability and
procurement, with high-quality manufacturing local brands to provide brand price tier responsibility priorities: creating a positive
operations and environmental standards. coverage that is best suited to its specific role for alcohol in society; building
consumer needs. thriving communities; and reducing
Leading capabilities: our focus is on brilliant
our environmental impacts.
execution including cutting-edge consumer Supply resources: our 21 markets are
insights and marketing, scalable innovation, designated as import markets, import and Our performance drivers and sustainability
and winning relationships with our customers third party production markets, or import and responsibility priorities are underpinned
through distribution and sales. and local production markets. Where we by our commitment to the highest standards
have dedicated in-market supply resource of governance and ethics.
Values: at the heart of everything we do
it increases the speed with which we can
are our company values: passionate about Additional information for shareholders
respond to local consumer demand and
customers and consumers; be the best;
helps to protect our supply chain from
freedom to succeed; proud of what we do;
political and economic volatility.
valuing each other.
Global functions: our 21 markets are
Our role in society: we are passionate about
supported by a global structure and shared
ensuring alcohol continues to play a positive
services designed to leverage scale, drive
role in society, and are committed to playing
efficiency, share best practice, impart
our part in tackling alcohol misuse.
knowledge and help build capability at
a local level, as well as apply governance
of controls, compliance and ethics.
08 DIAGEO Annual Report 2016 How we measure performance: Key performance indicators
HOW WE MEASURE PERFORMANCE:

Key performance indicators
Financial 1 Financial 1 Financial 1
Organic net sales growth Organic operating margin Earnings per share before
(%) improvement (bps) exceptional items (pence)(i)
2.8%
2016 2.8
19bps
2016 19
89.4p
2016 89.4
2015 0.0 2015 24 2015 88.8
2014 0.4 2014 77 2014 95.5
2013 5.0 2013 78 2013 103.1
2012 6.0 2012 59 2012 92.6
Definition Definition Definition
Sales growth after deducting excise duties, The percentage point movement in operating Profit before exceptional items attributable to
excluding the impact of exchange rate profit before exceptional items, divided by net equity shareholders of the parent company,
movements, acquisitions and disposals. sales after excluding the impact of exchange divided by the weighted average number
Why we measure rate movements and acquisitions and disposals. of shares in issue.
This measure reflects our performance as the Why we measure Why we measure
result of the choices made in terms of category The movement in operating margin measures Earnings per share reflects the profitability of
and market participation, and Diageo’s ability the efficiency of the business. Consistent the business and how effectively we finance
to build brand equity, increase prices and operating margin improvement is a business our balance sheet. It is a key measure for our
grow market share. imperative, driven by investment choices, our shareholders.
Performance focus on driving out costs across the business Performance
Volume growth of 1.3% driven by North America and improving mix. Earnings per share before exceptional items
and Europe combined with positive price/mix, Performance increased 0.6 pence largely driven by operating
primarily mix effect resulted in an organic net Organic operating margin improvement was profit growth, higher associate income and
sales growth of 2.8%. driven by favourable mix effect which helped lower finance charges partially offset by adverse
gross margin increase combined with exchange effects and the impact of disposals.
procurement efficiencies in marketing activity
offset by higher overheads.
More detail: see page 23 More detail: see page 23 More detail: see page 24
Non-Financial Non-Financial Non-Financial 1
Alcohol in society (reach and impact

(ii)
Health and safety (lost-time accident Water efficiency (iv)
of responsible drinking programmes) frequency per 1,000 employees) (l/l)
335 programmes
2016 335
1.44Δ
2016 1.44 Δ
5.1l/lΔ
2016 5.1 Δ
2015 298 2015 1.66(iii) 2015 5.8
2014 373 2014 1.66 2014 6.7
2013 315 2013 2.97 2013 6.9
2012 300 2012 2.14 2012 7.2
Number of programmes supported by Diageo Number of accidents per 1,000 full-time employees Ratio of the amount of water required to produce
that aim to reduce harmful drinking. and directly supervised contractors resulting in one litre of packaged product.
Why we measure time lost from work of one calendar day or more. Why we measure
We put our resources and skills into programmes Why we measure Water is the main ingredient in all of our brands.
that encourage a responsible attitude to alcohol Safety is a basic human right: everyone has the To sustain production growth and respond to
and are effective in preventing and reducing right to work in a safe environment, and our Zero the growing global demand for water, we aim
alcohol misuse, working with others to maximise Harm safety philosophy is that everyone should to improve efficiency, minimising our water use,
impact. These programmes address the risk of go home safe, every day, everywhere. particularly in water-stressed areas.
harm to consumers or communities and help us Performance Performance
deliver our Performance Ambition. In 2016, we improved our performance with a 12.1% improvement on 2015, resulting from
Performance reduction in LTAs of 13% compared with 2015. process optimisations and improvements across
We seek to broaden the reach of programmes, This was driven by a strong focus on embedding all sites and in particularly at our Tusker Brewery
but we are prioritising the impact they have. standards into newer markets to reduce accident in Kenya and our Gimli Distillery in Canada.
This involves supporting projects that are effective levels and leveraging best practice safety
in meeting their objectives. We share case studies management tools. In some of our more
showing impact evaluation on www.diageo.com. established markets, this enabled us to get
close to our target of zero accidents.
More detail: see page 41 More detail: see page 43–44 More detail: see page 46–47
How we measure performance: Key performance indicators DIAGEO Annual Report 2016 09
We use the following 11 key They measure progress Relevance to strategy
Strategic report
against our strategy and our Efficient growth
performance indicators (KPIs) performance against our KPIs Consistent value creation
are explained below:
to measure our financial and Credibility and trust
Motivated people
non-financial performance.
Financial 1 Financial Financial
Free cash flow Return on average invested capital Total shareholder return
(£ million) (ROIC) (%) (%)
£2,097m
2016 2,097
12.1%
2016 12.1
17%
2016 17
2015 1,963 2015 12.3 2015 2
2014 1,235 2014 14.1 2014 2
1,452 16.5 17
Governance
2013 2013 2013
2012 1,657 2012 16.3 2012 33
Free cash flow comprises the net cash flow Profit before finance charges and exceptional Percentage growth in the value of a Diageo
from operating activities aggregated with the items attributable to equity shareholders divided share (assuming all dividends and capital
net cash received/paid for loans receivable and by average invested capital. Invested capital distributions are re-invested).
other investments, and the net cash cost paid comprises net assets aggregated with exceptional Why we measure
for property, plant and equipment, and restructuring costs and goodwill at the date of Diageo’s Directors have a fiduciary responsibility
computer software. transition to IFRS, excluding post employment to maximise long-term value for shareholders.
Why we measure liabilities, net borrowings and non-controlling We also monitor our relative TSR performance
Free cash flow is a key indicator of the financial interests. against our peers.
management of the business and reflects Why we measure Performance
the cash generated by the business to fund ROIC is used by management to assess the return Diageo delivered total shareholder return of 17%
payments to our shareholders and acquisitions. obtained from the group’s asset base. Improving as dividends paid increased by 5% and share
Performance ROIC builds financial strength to enable Diageo price increased driven by underlying business
Improvement was driven by lower capex, to attain its financial objectives. improvement and exchange.
increased operating profit and lower interest Performance
payments partially offset by adverse working Adverse exchange led in a decline of ROIC
capital impact mainly driven by prior year partially offset by the increased return from
improvement in debtor collection. growth in operating profit and income
from associates.
More detail: see page 24 More detail: see page 24
Remuneration
Non-Financial 1 Non-Financial Some KPIs are used as a measure in the incentives
plans for the remuneration of executives. These are
Carbon emissions(v) Employee engagement index(vi) identified with the symbol .
(1,000 tonnes CO2e) (%)
See our Directors’ remuneration report
681
2016
Δ
681Δ
77%
2016 77
from page 66 for more detail.
(i) For reward purposes this measure is further adjusted for the
2015 738 2015 75 impact of exchange rates and other factors not controlled
by management, to ensure focus on our underlying
2014 823 2014 73 performance drivers.
2013 848 2013 85 (ii) Alcohol in society KPI has been redesigned to measure reach
2012 872 2012 86 and impact of programmes. See more details on page 41.
Definition Definition (iii) Non-financial KPIs for the year ended 30 June 2015 include
United Spirits Limited, except health and safety (see page 44).
Absolute volume of carbon emissions, Measured through our Values Survey; includes
in 1,000 tonnes. metrics for employee satisfaction, loyalty, (iv) In accordance with Diageo’s environmental reporting Additional information for shareholders
methodologies, data for each of the four years in the period
Why we measure advocacy and pride. ended 30 June 2015 has been restated and total water used
Carbon emissions are a key element of our Why we measure excludes irrigation water for agricultural purposes on land under
the operational control of the company.
environmental impact and the impact of the Employee engagement is a key enabler of our
(v) Data for each of the four years in the period ended 30 June 2015
industry. We recognise the importance of strategy and performance. The survey allows us has been restated in accordance with the WRI/WBCSD GHG
reducing our carbon emissions to mitigate to measure, quantitatively and qualitatively, how Protocol and Diageo’s environmental reporting methodology.
climate change and position us well for a far employees believe we are living our values. The (vi) In 2014, we reviewed our overall approach to measuring
low-carbon economy in the future, as well as results inform our ways of working, engagement engagement, and adopted a revised index. The new index
creating efficiencies and savings now. strategies and leadership development. allows us to compare our results with other best-in-class
organisations, and sets us a more stretching benchmark for
Performance Performance employee engagement.
7.7% reduction in total carbon emissions resulting This year, 97% of our people participated in our Δ Within PwC’s limited assurance scope. See page 155
from cumulative impacts of multiple energy Values Survey (24,843 out of the 25,712 able to for further details.
efficiency initiatives and switches to renewable participate). 77% of our people were identified as
fuels, predominately biogas recovery and reuse engaged, with 80% feeling they were ‘enabled to
and displacement of fossil fuels. perform’. Our survey scores have improved each
year since 2014.
More detail: see page 47–48 More detail: see pages 44–45
10 DIAGEO Annual Report 2016 Chairman’s statement
CHAIRMAN’S STATEMENT
Diageo is a global leader in an industry that is
growing and financially attractive. As we deliver
on our future opportunities with our brands and
geographic reach, we will continue to promote
responsible drinking as part of a balanced lifestyle.
This is at the centre of Diageo’s purpose to celebrate
life every day, everywhere.
Dr Franz B Humer, Chairman
Recommended final dividend per share
36.6p 5%
2015: 34.9p
Total dividend per share(i)
59.2p 5%
2015: 56.4p
Total shareholder return (%)
17%
2015: 2%
(i) Includes recommended final dividend.
A stronger, more competitive business together represent almost half of the global Alongside the continued focus on organic
I am pleased with the performance Diageo growth opportunity for our industry, and growth, Diageo released £1 billion from the
has delivered this year, my last as Chairman. also a leading competitive position in North sale of non-core assets through a more
We are a stronger business and have returned America, the biggest driver of developed proactive approach to managing our
to growth, and I would like to thank our Chief market growth. In each of these markets we portfolio. This included the sale of our wine
Executive, Ivan Menezes, and the Diageo have a strong portfolio of brands, a proven interests – primarily the US-based Chateau
Executive team for leading this progress. capability in identifying and acting on and Estate Wines and the UK-based Percy
Diageo has positioned the consumer at the consumer insights, leading skills in marketing Fox businesses to Treasury Wine Estates –
heart of the business, through marketing, and innovation, and a reputation for operating and the sale of non-core beer assets in
innovation, local participation strategies and in a responsible and sustainable way. Jamaica and Malaysia. These transactions
now has the consumer-facing culture required followed the restructuring of our business in
to succeed in today’s competitive Business development Southern Africa, having achieved our goal of
marketplace. Responsiveness and agility are key drivers of leadership in spirits and growth in the beer
Diageo’s opportunity for growth lies in performance and the Diageo Executive team business through the successful brandhouse
positive global demographics and income have enhanced these capabilities in several joint venture with Heineken and Namibia
growth, and the increasing penetration of areas during the year, including: a continued Breweries. Diageo now has the scale to move
spirits in emerging markets. Our footprint is focus on building a world-class sales to the next stage of growth in South Africa
made up of enviable positions in key organisation, investment in local production, with a focused, simplified ownership
geographies: in Africa and India, which and building the capability of local talent. structure.
Chairman’s statement DIAGEO Annual Report 2016 11
Our investment in United Spirits Limited We put our resources and skills into hundreds Board changes
Strategic report
(USL) in India offers Diageo a transformational of programmes around the world that reduce In November 2015, Deirdre Mahlan stepped
growth opportunity in one of the most alcohol misuse, working closely with other down from the Board, as she moved from
attractive spirits markets in the world. India stakeholders to raise awareness and change her role as Chief Financial Officer to take up
is set to become the second country after people’s attitudes and behaviour. This forms the role of President, Diageo North America.
China with a population of more than one part of our support of the industry’s Global I wish to thank Deirdre most sincerely for
billion consumers of legal purchase age, with Producers’ Commitments to Reduce the her excellent contribution to the Board
the expected growth of 18–19 million legal Harmful Use of Alcohol, now in their fourth and am pleased that she continues to play
purchase age consumers per year. year, which are making a tangible difference a pivotal role in leading this important
Since Diageo became the principal in areas such as reducing drink driving and business for Diageo. I am also delighted
shareholder in USL in India in July 2013, tackling underage drinking. We are also to have welcomed Kathryn Mikells to the
we have been determined to capture the proud that we are supporting skills and social Board as Chief Financial Officer, effective
significant growth opportunity of one of enterprise in the community, through 9 November 2015. Kathryn joined us with
the largest spirits markets in the world. On programmes like Learning for Life, bringing a track record for capital discipline and for
25 February 2016, Diageo announced that opportunities for training and careers in the developing strong cost cultures to create
it had entered into an agreement with Dr Vijay hospitality industry, and Plan W, empowering efficient, agile organisations.
Mallya under which he resigned from his women through learning. And we are Diageo announced on 18 May 2016, that
Governance
position as Chairman and Non-Executive working hard, including with our suppliers, Javier Ferrán would be appointed to the
Director of USL and from the boards of other to reduce our environmental impact, setting Board as a Non-Executive Director from
USL group companies. The agreement ourselves new, challenging targets around 22 July 2016. On my retirement from the
brought to an end the uncertainty relating water, carbon and waste for 2020. These Board on 31 December 2016, Javier will take
to the governance of USL and put in place a priorities represent an interlinked, holistic over as Chairman from 1 January 2017. On
five-year global non-compete (excluding the approach to understanding and managing behalf of the Board, I would like to welcome
United Kingdom), non-interference and our impact on society. Javier to Diageo and say how delighted I am
standstill arrangement with Dr Mallya. Partnerships are key to delivering positive that he has agreed to be the next Chairman.
outcomes, and we have recently announced Through his roles at Lion Capital and Bacardi,
Value creation and dividend a global strategic partnership with the Javier has a wealth of experience across the
We measure our progress towards achieving NGO WaterAid, building on our efforts to consumer goods sector and brings a strong
our Performance Ambition through four areas: improve access to safe water across Africa. set of skills to the role of Chairman.
efficient growth, value creation, credibility and Also this year, through a partnership with
trust, and motivated people. We improved the United States Agency for International Global volume share of premium spirits
against each of our efficient growth metrics, Development, we have extended our work (%)
and Ivan will discuss these in his statement. on skills as part of their programme in
Our value creation measures also improved. Colombia, and have set up a new farming
Return on average invested capital (ROIC) was supply chain in South Sudan, supporting
broadly flat against a decline last year and our livelihoods for hundreds of people. These
total shareholder return (TSR) performance partnerships, with more to follow, increase
has improved on last year, up 17%. the reach of our programmes and help us
Diageo targets dividend cover (basic contribute to the UN Global Goals.
earnings per share before exceptional items/
dividend per share) within the range of Managing geo-political risks
1.8 to 2.2 times. The recommended final and opportunities
dividend for the year ended 30 June 2016 is Political and other volatility continues to be a Diageo 25% Beam Suntory 7%
36.6 pence per share, an increase of 5% over growing feature of the global economy and Pernod Ricard 16% Brown-Forman 6%
Bacardi 9% Others 37%
the prior year in line with our policy to rebuild many of the markets in which we operate.
Source: Impact Databank, March 2016
dividend cover to our targeted range. This We are continually improving our ability to
brings the full year dividend to 59.2 pence understand and interpret it; and to evaluate
A global leader
per share and dividend cover to 1.5 times. and act against the potential risks and the
It has been an honour to serve as your
Subject to approval by shareholders, the final opportunities for the business. We have
Chairman. During the past eight years Additional information for shareholders
dividend will be paid to shareholders on integrated the work of our strategy, risk and
Diageo has become a truly global leader,
6 October 2016. Payment to US ADR holders public affairs teams and also improved our
with the assets and consumer-facing culture
will be made on 12 October 2016. in-depth analysis of, and scenario planning for,
required to succeed. Diageo’s values are
priority markets. I am confident this will further
deeply rooted in the principle of always
Our role in society enhance our resilience and growth potential.
doing the right thing. I am therefore
Ensuring we make a positive contribution to It is too early to assess the implications of
confident that Diageo will continue to
society has always been a priority for Diageo the United Kingdom’s decision to leave the
prosper, and succeed in delivering its
and is at the core of our Performance European Union for our business and
Performance Ambition for all stakeholders
Ambition. Doing so is good for our business, operations over the longer term. We believe,
around the world.
good for our communities and good for however, that with our proven record of
our consumers, and it is also true to our managing trade and operating globally,
values and our people. The Diageo Code of Diageo remains well placed to deliver its
Business Conduct defines these values and Performance Ambition.
helps our employees live by them every day. Dr Franz B Humer
Chairman
12 DIAGEO Annual Report 2016 Chief Executive’s statement
CHIEF EXECUTIVE’S STATEMENT

This has been a year of significant progress for Diageo.
Our performance demonstrates our focus on disciplined
execution in everything we do. It is this focus which has
delivered volume growth, our fifth consecutive year
of margin improvement and strong cash conversion.
I am confident we now have the platform to deliver
sustainable growth.
Ivan Menezes, Chief Executive
Volume Organic volume

movement movement
0.1% 1.3%
2015: 58% 2015: 1%
Net sales Organic net

movement sales movement
3.0% 2.8%
2015: 5% 2015: flat
Operating profit Organic operating

movement profit movement
1.6%
2015: 3%
3.5%
2015: 1%
Performance We have sustained positive price/mix despite North America delivered organic net
We have a clear strategy, consistently applied a weaker pricing environment globally, and sales growth of 3%. This performance
which has returned Diageo to both organic we have strengthened our leadership is in line with our expectations, with the
volume and organic net sales growth, position and brought our brands to an biggest contributor to organic net sales
delivered margin improvement and a strong increasing number of consumers. Our beer improvement being that our biggest
cash performance. business has grown for seven successive brands are back in growth.
This year we delivered organic volume quarters and continues to provide a strong Organic operating margin was up, driven
up 1.3%, and organic net sales up 2.8%, with distribution platform for our spirits ambitions by favourable mix effect and marketing
a stronger performance across both in the in Africa. efficiency. Operating profit grew 3.5% on an
second half. The improvement in organic All six global giant brands reported organic basis. On a reported basis, operating
net sales has been driven by a return to improved performance this year. Smirnoff’s profit was up 1.6%, negatively impacted by
volume growth, and a significant turnaround and Captain Morgan’s improvement was exchange and disposals. Earnings per share
in US Spirits. driven by their performance in the United before exceptional items was up 1% as profit
We are a more focused company States combined with continued good growth, higher associates income and lower
following the disposal of non-core growth in Europe. Guinness’ momentum finance charges more than offset the impact
businesses. These disposals, along with continues with the brand growing in Africa of exchange and disposals.
adverse exchange, did however impact and in Great Britain and Ireland, supported
reported net sales, which declined 3.0%. by innovations from The Brewers Project.
Chief Executive’s statement DIAGEO Annual Report 2016 13
implementation of the Global Producers’ outcome of this referendum will not have
2016 net sales by category (%)
Strategic report
Commitments to Reduce the Harmful Use any material near-term impact on our
of Alcohol, an unprecedented partnership business and we are well placed to continue
of the world’s largest alcohol companies our global business without significant
coming together to tackle harmful drinking disruption.
– and, as an industry, we are seeing good
progress against the targets we set ourselves Our people
for 2017. We welcome the trends we are I would like to thank all our 32,000 people
seeing, such as consumers, and particularly for their energy and dedication during the
young adults, drinking better not more, and year. I am fortunate to lead a business with
the significant fall in the number of alcohol- motivated, committed teams around the
related road traffic fatalities in many world. This was demonstrated by this year’s
Scotch 24% IMFL Whisky 5% countries. This suggests that initiatives annual employee Values Survey, which
Beer 18% Liqueurs 5%
Vodka 13% Gin 3%
such as the multi-stakeholder approach showed another year of improving
NAM Whisk(e)y 8% Tequila 1% advocated by the Global Producers’ engagement scores. Our results compare
Rum 7% Other 10% Commitments are having a positive impact. very well with those of other multinational
Ready to drink 6% We are not complacent and there is more companies, which I see as a real competitive
Governance
to do. This year, we signed a strategic advantage for Diageo.
We continue to drive productivity and cash
partnership agreement with the United Franz, in his statement, highlighted that
conversion, delivering over 100% cash
Nations Institute for Training and Research Javier Ferrán, who joined the Board as a
conversion for a second year and free
(UNITAR) which, over the next two years, Non-Executive Director on 22 July 2016, will
cash flow improved by £134 million.
will work towards reducing traffic death succeed him as Chairman on 1 January 2017.
and injuries, and improve road safety I would like to extend my thanks to Franz
Business transformation
globally. I was proud to learn that we were for his role in making Diageo the strong
Over the past three years, my goal has been
approached to partner with UNITAR on the business it is today, and for his stewardship
to put the consumer at the heart of our
basis of our strong track record in supporting of the Diageo Board during his eight years
business. Consumer trends are moving
programmes and policies to address as Chairman. I look forward to working
faster than ever before and companies that
drink driving. with Javier as we build on Diageo’s
can interpret and deliver quickly against
We are long-standing leaders in providing leadership position.
consumer insights will thrive. The renewed
consumer information to help people make
momentum we have in the business is
informed choices as part of a balanced Outlook
because we have the consumer-facing
lifestyle, and recently announced that Diageo has an enviable portfolio of brands,
culture required to succeed and the agility
Johnnie Walker Red Label will be the first a truly global footprint and exposure to the
to move at pace.
global brand to provide per serving alcohol fastest growing opportunities in our sector.
We have shifted the focus of our
content and nutritional information on-pack. The business is now able to respond faster
marketing to be centred on the recruitment
The new labels are designed to help to consumer insights, to shape trends and
and re-recruitment of consumers and on
consumers understand what’s in their glass, to deliver. We have been embedding a
what drives consumption occasions, and
and conform to the new Diageo Consumer productivity culture, and are committed
we are introducing more rigour around
Information Standards which came into to sustainable efficiency in every area of our
the evaluation of the effectiveness of our
force on 1 July 2016 and applies to all cost base to achieve £500 million in savings
spend. We continue to uphold the highest
Diageo brands. in the coming three years. Two-thirds of the
standards of responsibility, ensuring that all
During the year, I also had the efficiencies identified will be re-invested
our marketing activities adhere to our strict
opportunity to launch our new DRINKiQ back into the business to drive growth. We
Diageo Marketing Code.
exhibit at the Guinness Storehouse in are confident of achieving our objective of
Dublin, Ireland, which is one example of mid-single digit organic net sales growth,
Our role in society
our work to help people make informed and in the three financial years ending 2019
We know that the issues that are most
decisions. This exhibit supports our global delivering 100 basis points of organic
material to our business and stakeholders are:
responsible drinking website, DRINKiQ.com, operating margin improvement.
• To create a positive role for alcohol
which was relaunched in January this year I am also confident that, with the consumer Additional information for shareholders
in society
in 12 languages. at the heart of our business, we will extend
• Build thriving communities
our leadership position and become one of
• Reduce our environmental impacts.
United Kingdom (UK) and the the most trusted and respected consumer
Our strategy recognises that these issues
European Union (EU) products companies in the world.
are connected to our opportunities as a
Following the UK’s vote to leave the EU
business, as well as the UN Global Goals
on 23 June 2016, we are working closely
launched in 2015. Our strategy also reflects
with government and our industry bodies
how the elements of our value chain are
to ensure our views are reflected in the
interdependent, and how contributing
transition process. We welcome the
to society, to communities, and to the
formation of a specialist international trade Ivan Menezes
environment strengthens our business.
department, as it is important for Diageo that Chief Executive
We are passionate about ensuring alcohol
the UK continues to benefit from open access
has a positive role in society as part of a
to the EU as well as favourable international
balanced lifestyle and are committed to
trade agreements. We believe that the
tackling misuse. We do this through our
14 DIAGEO Annual Report 2016 Market dynamics
MARKET The global beverage alcohol market is large and

diverse, with an estimated six billion(i) equivalent
DYNAMICS units of alcohol sold each year, generating
£260 billion(i) of net sales. Like other consumer
goods companies, beverage alcohol companies
operate in a context of increasing stakeholder
expectation – with the added element of high,
and highly diverse, levels of regulation. This
environment presents opportunities for Diageo,
with our global reach, our range of iconic
brands across price tiers, and our approach
to responsibility, sustainability, governance
and ethics.
A market that is profitable and expanding local consumers and the categories, brands Our broad participation across geographies,
The beverage alcohol market is profitable, and price points they are seeking is vital categories and price tiers acts as a natural
growing and attractive. Over the medium to accessing this growth. hedge against individual market volatility,
term, the industry is expected to grow overall The emerging middle-class plays an while we retain the flexibility in each market
in both volume and value. This is driven by important role. These relatively affluent to respond quickly to local dynamics
consumer fundamentals including a rise in consumers already drink beer or local spirits, through our 21 market business model.
global incomes and a growing legal purchase and the opportunity is to further access this Continued focus on local sourcing of
age population. At the same time, margins existing consumption pool with our brands ingredients, scenario planning and risk
remain significantly higher than for the overall and to offer an opportunity to trade up to management, and management of foreign
consumer goods market. our international spirits brands for certain exchange exposure all work to protect the
The market for beverage alcohol is also occasions. Outside this group, an estimated business against the challenges of volatility.
highly diverse, with significant variations 25% of global alcohol consumption is from
in culture and conditions between, and non-commercial or illicit products. Capturing Earning the trust and respect which
within, individual countries and regions. market share in this consumer segment by support performance
It is broadly split between developed and offering legitimate, safe, attractive brands Our ambition is to be one of the best
emerging markets, but each individual that deliver quality at an affordable price is performing, most trusted and respected
market presents different consumer an important opportunity. consumer products companies in the world
dynamics and a different outlook. This There is also a significant and growing – ensuring we play a positive role in society is
diversity presents opportunities to agile number of globally affluent consumers in at the heart of this. Operating in a responsible
businesses that can act on consumer insight the emerging markets, who represent an and sustainable way every day, everywhere,
and deliver trusted, competitive products. opportunity for our reserve portfolio. not only helps us be a trusted and respected
business, it also helps drive our performance.
Developed market opportunities Geo-political volatility The launch of the UN Global Goals in
Typically, developed market populations While there are positive medium-term September 2015 and the Paris Agreement on
are ageing and growing more slowly prospects for the beverage alcohol industry, climate change in December 2015 represent
than those in emerging markets. Overall, all consumer goods businesses, including important milestones in what was arguably an
levels of disposable income are higher, beverage alcohol businesses, continue to unprecedented period of concerted action to
and consumers are often prepared to navigate a volatile global economy. Our Chief address global issues. These initiatives both
pay a premium for high quality brands Executive discusses the United Kingdom’s reflect and drive a wider trend in which
with heritage and provenance. We see referendum vote to leave the European Union stakeholders of all kinds, including consumers
consumption occasions as opportunities on 23 June 2016 on page 13. and in particular millennials, have increasing
to promote our international spirits The slowdown in the Chinese economy, expectations that businesses must create
brands, and, within those brands, to oil price shocks, persistent conflicts in many value beyond their economic contribution.
encourage consumers to trade up parts of the world, and terrorist attacks Delivering measurable social benefits,
to our reserve portfolio. in Europe are just some of the events tackling alcohol misuse, demonstrating
and trends that have contributed to an good corporate governance and reducing
Emerging market opportunities unpredictable environment. The resulting environmental impacts in line with a clear
Opportunities in emerging markets are driven uncertainty, changes to economic variables sustainable development strategy are, more
by growth in both populations and wealth. such as exchange rates and commodity than ever, business imperatives which drive
Each country is different, and growth occurs prices, and fluctuations in political security performance.
at different price points depending on wealth can all reduce consumer confidence and
and local conditions. An understanding of spending power. (i) Diageo estimates.
Market dynamics DIAGEO Annual Report 2016 15
We have built on our long history of consumer information and responsible as a result of their impact on the wider
Strategic report
sustainability and responsibility programmes product innovation, reducing drink value chain and associated communities.
by developing a strategy that is aligned with driving, and enlisting the support of retailers Water scarcity is particularly important to
the UN Global Goals and Paris Agreement to reduce harmful drinking. Diageo goes us because water is our main ingredient.
and focuses on the three areas that are most beyond industry collaboration and Our Water Blueprint, launched in April 2015,
material to us and our stakeholders: creating works in partnership with governments, defines our strategic approach to water
a positive role for alcohol in society; building law enforcement, educators and civil stewardship, and focuses specifically on
thriving communities; and reducing our society to support campaigns to reduce stewardship in the water-stressed areas
environmental impact. We have set ourselves harmful drinking. shown in the map below.
targets to achieve in each of these areas
by 2020. Building thriving communities Trust and transparency
We can add significantly to the contribution As part of the process of creating value, we
Creating a positive role for alcohol in society we make to communities through direct and are increasingly expected to be transparent
Alcohol has been enjoyed for centuries and indirect employment, taxes, and community about our most material social and
is part of celebrations around the world. investment efforts by working to leverage environmental issues. This is delivered
Whether people drink beer, wine or spirits, the economic and social impact of our entire through reporting frameworks such as
alcohol is alcohol, and the vast majority value chain. Helping communities thrive the International Integrated Reporting
Governance
of people who choose to enjoy it, do so within the supply chain also builds resilience Framework, the Global Reporting Initiative
moderately and responsibly. We respect within our business. We build trust with Guidelines, and the United Nations Global
that some people choose not to drink, and government and other stakeholders by Compact principles. We report against all
recognise that the misuse of alcohol can be focusing on human rights throughout our three of these, and believe that this regulation
harmful to individuals and society. Putting value chain, and through local sourcing and scrutiny can be an advantage to
our resources and skills into programmes initiatives, particularly in Africa where we companies with good corporate governance
that prevent and reduce alcohol misuse and aim to source 80% of agricultural materials and the right approach to sustainability and
working with others to raise awareness and for use in local markets by 2020. This helps responsibility.
change attitudes and behaviour is good for secure supply, and delivers wider benefits
society and good for the long-term future to the local community.
of our business.
Climate change and water scarcity
Support for effective alcohol policies All businesses, particularly those that rely on
The beverage alcohol industry is one of the agricultural raw materials, are exposed to a
most highly regulated in the world, with variety of environmental issues associated
regulation varying widely between countries with climate change, such as droughts, floods
and jurisdictions. Diageo complies with all laws and biodiversity loss. These issues can affect
and regulations, wherever we operate, a business’ operations directly, or indirectly
as a minimum requirement. We advocate
effective alcohol policies that are evidence-
based, account for drinking patterns, Diageo sites located in water-stressed areas 32
21
29
target at-risk groups, treat all forms of alcohol 35
18
equally, and involve all stakeholders. Such 19 36
39
policies include mandating a minimum
24 20 23
legal purchasing age of not less than 18; a
25 33
maximum blood alcohol concentration (BAC) 22
level for drivers of no more than 0.08mg; and 30 38
28
lower BACs for novice and commercial drivers. 37
34
26
However, we advocate against measures
27 31
that are not based on evidence or are likely to
have unintended consequences in what are 13 15 11 12 1
17 16 2
often complex markets. A particular concern 14
8 Additional information for shareholders
is policies that inadvertently push consumers 10 3
towards unregulated or illicit alcohol, which 5 9
can be a risk to public health. 4 7
6
Industry collaboration Sites

We are one of 12 global producers of beer, 1 Kenya Brewing, Nairobi 10 Mwanza, Tanzania 20 Aurangabad, Maharashtra 32 Pathankot, Punjab
wine and spirits which, in 2013, launched 2 East Africa Maltings, 11 UBL, Kampala, Uganda 21 Baddi, Himachal Pradesh 33 Pioneer, Maharashtra
Nairobi 12 IDU, Kampala, Uganda 22 Baramati, Maharashtra 34 Puducherry
a set of commitments designed to support 3 Seybrew, Seychelles 13 Accra, Achimota, Ghana 23 Bhadrakali, West Bengal 35 Rosa, Uttar Pradesh
Member States’ implementation of the World 4 SA Cider, South Africa 14 Kumasi, Kaasi, Ghana 24 Bhopal, Madhya Pradesh 36 Serampore, West Bengal
5 Phelindaba Brewery, 15 Ogba, Lagos, Nigeria 25 Four Seasons Winery, 37 Sovereign, Karnataka
Health Organization’s (WHO) global strategy South Africa 16 Paraipaba, Ceará, Brazil Maharashtra 38 Tern, Andhra Pradesh
to Reduce the Harmful Use of Alcohol. These 6 Butterworth Brewery, 17 Agricultural lands, 26 Hospet, Karnataka 39 Udaipur, Rajasthan
South Africa Ceará, Brazil 27 Kumbalgodu, Karnataka
commitments focus on reducing underage 7 Khangela Brewery, 28 Malkajgiri, Telangana
South Africa India 29 Meerut, Uttar Pradesh
drinking, strengthening and expanding 8 Moshi, Tanzania 18 Alwar, Rajasthan 30 Nacharam, Telangana
marketing codes of practice, providing 9 Dar es Salaam, Tanzania 19 Asansol, West Bengal 31 Palakkad, Kerala
16 DIAGEO Annual Report 2016 How we will deliver our Performance Ambition
HOW WE WILL Diageo’s performance drivers and sustainability

and responsibility priorities are key to achieving
DELIVER OUR our aims. Each of our 21 markets focuses on the
PERFORMANCE priorities that are most relevant to driving growth
AMBITION and creating shared value in that market.
Our six performance drivers
1
Strengthen and accelerate growth
2
Win in reserve in every market
3
Innovate at scale to meet new
of our premium core brands consumer needs
Our premium core brands are sold in Seven years ago we shifted our We are a company built and sustained
more than 180 countries around the approach to luxury spirits and made through innovation, which gives us
world. They are enjoyed by consumers reserve a strategic priority. The results the drive to create new products, new
in developed markets and have wide demonstrate what building capability categories and new experiences for
appeal in emerging markets. They and having focus can do. consumers. We are the leaders in our
include iconic brands Johnnie Walker, industry, inventing today for tomorrow,
Smirnoff, Captain Morgan and Baileys. staying on the edge of, and anticipating,
consumer behaviour.
4
Build and then constantly extend
5
Drive out costs to invest in
6
Ensure we have the talent to
our advantage in route to consumer profitable growth deliver our Performance Ambition
We have put the consumer at the centre We want to continuously get more We employ bright, collaborative
of our business. Our route to consumer efficient and effective in everything we people at all levels in our business,
transformation has driven a clear do to further enable us to invest in and must continue to do so if we are
understanding of what success looks like growth for our business, our people and to achieve our aims. Our people,
in a store, in a bar and in the hands of our brands. We have set a goal to deliver culture and values are what will
our consumers. We now have the productivity savings of £500 million over make the difference.
consumer-facing culture to succeed. the next three years, with two-thirds of
this re-invested for growth.
Our three sustainability and responsibility priorities
1
Create a positive role for alcohol
2
Building thriving communities
3
Reducing our environmental
in society impacts
We are committed to maintaining our We create value for millions of people We are dependent on the natural
leadership position by ensuring we as a buyer of goods and services, as resources we share with the
make a positive contribution to society an employer, as corporate citizens, and communities around us, and with
and work to tackle alcohol misuse as producers of some of the world’s the wider world. We want to use
alongside the industry. We will continue best-loved brands. We want to continue those resources responsibly, and make
to operate in a responsible way every to help those communities thrive, by a net positive contribution to the
day, everywhere, to remain a trusted and making Diageo a great, safe, and diverse environment through our operations
respected business and drive our place to work, by building sustainable and supply chain. We are working to
performance. We remain focused on supply chains, and through programmes reduce our impacts in the areas of
delivering the five Global Producers’ that empower communities and water, carbon, packaging, and waste.
Commitments(i) and our own stretching individuals.
2020 targets.
(i) For more information on the Beer, Wine and Spirits Producers’ commitments, visit www.producerscommitments.org.
How we will deliver our Performance Ambition DIAGEO Annual Report 2016 17
Here we share a selection of case studies how our approach to sustainability
Strategic report
that demonstrate how we are executing and responsibility supports everything
our performance drivers at a market and we do.
global level. The case studies also show
US Spirits Europe – Ireland
SMIRNOFF – REDISCOVERING This brings together our brand’s long-

standing association with music and
THE CHALLENGER MINDSET inclusivity with an audience for whom those
THROUGH INCLUSIVITY things are an essential part of life. We are
fostering diversity and inclusion through our
support for subcultures within electronic
Smirnoff has built its purpose around
music – like female DJs, LGBTQ
celebrating inclusivity. Originating in
performers and fans, and music
Russia, Smirnoff has always been a brand
collectives from a diverse range of
of the people and taken pride in
Governance
cultural backgrounds.
bringing quality to a wide and diverse
Smirnoff is being revitalised in
audience. It is part of what has
its largest market, US Spirits, where it The experimental Open Gate Brewery, Dublin, Ireland.
made it the world’s largest premium
has underperformed in recent years.
spirits brand by volume.
Smirnoff is therefore a great
It is now again becoming what GUINNESS – INNOVATING
it should be – a challenger and AT SCALE TO GROW SALES
match for millennial consumers, a
innovator, creating new products
generation who value diversity and
that meet the needs of a new
inclusivity and are willing to
generation of consumers, including We have been exploring innovative beer
embrace new ideas, accept each
the new Smirnoff Sourced, infused making for more than a century at the
other and bring people together.
with real fruit juice and naturally experimental Pilot Plants located in the
Smirnoff is connecting with the
gluten free. Guinness Brewery in Dublin, Ireland – but
energy of this powerful consumer
until this year we had never invited the
movement through Smirnoff Sound
Smirnoff Sourced, responding to consumer public in to taste our experiments. In
Collective, our programme of demand for natural flavour choices and response to the craft beer movement,
support for electronic music artists. transparency about product ingredients.
visitors to the Open Gate Brewery bar at
St James’s Gate, which opened in November
Global Travel Asia and Middle East 2015, can now sample from a range of trial
beers that have been crafted by pioneering
JOHNNIE WALKER – set a payback threshold of three years, while brewers operating at the cutting-edge of
our brand ambassadors ensure that we are creativity and brewing technology.
BRINGING LUXURY selling responsibly through the Diageo The Open Gate Brewery serves up small
BRAND EXPERIENCES TO Marketing Code and Code of Business batch innovations that draw on the Guinness
GLOBAL TRAVELLERS Conduct, as well as increasingly through an heritage while exploring entirely new beer
online course delivered by the Asia Pacific styles, generating immediate customer
Travel Retail Association’s (APTRA) feedback. At the brewery we have also been
Our reserve brands are an experience to Responsible Retail Training Programme. able to collaborate with local food and drink
be savoured – and luxury-minded global Since Johnnie Walker Houses combine festivals. Several beers have already made it
travellers are enjoying the chance to do just great brand exposure with increased sales, from the Open Gate Brewery to production
that in our expanding network of Johnnie we have accelerated our plans to open at scale in Brewhouse No4, with Hop House
Walker Houses in international airports. further airport outlets during 2017 in three 13, Dublin Porter, West Indies Porter and
These offer the chance to spend some of the formats – standalone house, shop-in-shop, Nitro IPA all finding success with consumers. Additional information for shareholders
‘golden hour’ before a flight learning about and counter. Thanks to this burgeoning innovation
the history and provenance of this famous pipeline the number of different types of
Scotch whisky with the guidance of trained beers brewed at St James’s Gate has
brand ambassadors. doubled, alongside improved environmental
And we are finding that this innovative performance. The efficiency gains and extra
brand experience is driving performance. brewing capacity have been delivered
This year, we opened new Johnnie Walker through our Manufacturing Excellence
Houses in the airports of Auckland, Beijing programme.
and Incheon, building on the success of the In 2015, Brewhouse No4 was the first
existing houses in Singapore, Mumbai and major brewery in the world to be awarded
Taipei. These have delivered incremental net Platinum LEED certification for leadership
sales and an increase in average transactions, in energy and environmental design. And,
as well as an increase in volume sales of in April 2016, it achieved Ireland’s Green
super-deluxe scotch. To make sure the Houses Each Johnnie Walker House is designed to inspire Award in the sustainable water category.
keep delivering a return on investment, we consumers as they learn about the finest of whiskies.
18 DIAGEO Annual Report 2016 How we will deliver our Performance Ambition
East Africa West Latin America and Caribbean (West LAC)
EMBRACING PRODUCTIVITY imported one. And in May 2016, we

successfully worked together with the same
IN EVERYTHING WE DO co-packer to introduce the first JεB bottle to
be made in Argentina. This JεB local bottle
Being as productive as we can be with the will enable the team to deliver a more
resources we control is essential to deliver competitive retail price and increase
our Performance Ambition. investment in the brand, with the ambition
Our largest market in Latin America, West of making JεB a bigger brand and
LAC – which comprises 44 countries in accelerate growth. Productivity delivers
Western and Southern Latin America, value in other ways too, for example
Central America, and the Caribbean – sourcing glass, closures and labels
East Africa Breweries Limited (EABL) sources over 80% provides a great example of productivity locally in Argentina has led to a more
of raw materials locally. in action. In West LAC this year, we made efficient use of natural resources.
a 5% saving in our controllable spend Our responsible drinking
SETTING A GOLD STANDARD through transformations in sales, programmes, such as La Bomba in
FOR ROUTE TO CONSUMER our distribution network and Lima, Peru, are making a difference
manufacturing, and through net in the region. Since May 2016,
AND HUMAN RIGHTS La Bomba in collaboration with the
efficiencies and best practice at shared
ASSESSMENT IN KENYA service centres. Ministry of Education, has educated
In September 2015, faced with the 450 students in five schools about
ongoing challenge of import the risks of underage drinking,
Our route to consumer focus has seen
restrictions in Argentina, we worked while reinforcing our long-standing
the introduction of a Gold performance
with our co-packer to develop a local reputation as a responsible
programme for distributors in Kenya.
bottle for Smirnoff which replaced the business in the region.
The Gold programme works directly with
our distributors of mainstream, premium
core and reserve brands, helping them build
capability and manage performance, while Global
incentivising sales. A dedicated home team
provides training and advice to help them
meet these goals.
Our Gold programme has helped
distributors in Kenya deliver 93% overall
performance versus the stretching plans set,
compared to 89% for those not enrolled on
the Gold programme. So we know that the
Gold programme is worth the investment.
On average, volumes increase 3% faster
than those not on the Gold journey, and these
distributors now reach 81% of outlets in their
areas, compared with 66% before the Gold
programme. It has also seen turnaround times
One example of shareable online content used during this engagement campaign.
during delivery reduced by 30%. In the
second half of this financial year, another six everywhere in the month of March –
distributors joined the Gold programme.
ENGAGING OUR PEOPLE allowing Diageo people to celebrate their
At the same time, we launched our TO TELL THE WORLD current achievements together, and create
human rights impact assessment in Kenya, WHAT MAKES THEM a focus for fundraising and volunteering
which examined every element of our value to continue our legacy of support. The
#PROUDOFWHATWEDO
chain: from suppliers, including the barley campaign, in its second year, built on the
and sorghum farmers who grow our success of 2015 by giving employees even
ingredients, to employees and contractors, Being ‘proud of what we do’ is a core value more opportunities to be ambassadors
to distributors, retailers and outlets. While at Diageo, where creating value for the inside and outside the business, through
Diageo has always been committed to communities we are part of has inspired shareable online content to help tell
human rights, this assessment is the most and motivated generations of employees. our story.
comprehensive the business has ever Our #proudofwhatwedo campaign builds This year, through our employee Values
undertaken, and is helping us strengthen our on that heritage by giving employees more Survey we achieved a score of 85% against
approach to managing processes to identify ways to take action on the sustainability and our ‘proud of what we do’ index, with 88%
human rights risks. Read more on these responsibility issues closest to their hearts. of employees agreeing with the statement
policies and HR approach on page 42. It inspires them and others by sharing and ‘I am proud to work for Diageo’. That pride
celebrating the stories they are most proud of. plays a vital role in our ambition to recruit,
Employees across our global business retain and engage the very best people to
take part in the campaign, which culminates deliver our Performance Ambition.
How we protect our business: Risk management and principal risks DIAGEO Annual Report 2016 19
HOW WE PROTECT Our Performance Ambition calls on us to be
Strategic report
bold and to act like owners. Well managed
OUR BUSINESS: risk taking lies at the heart of this. Great risk
Risk management management drives better commercial
and principal risks decisions, creating a growing, resilient
and sustainable business.
Our approach updates to risks and/or mitigation plans while the developing sphere of data privacy
Our risk management framework is made as necessary. is introduced as a principal risk this year. Our
Governance
straightforward. We believe that great Further details about the group’s risk risks also range from immediate threats such
risk management starts with the right management approach are described in the as cyber and political violence, to responding
conversations, to drive better business Report of the Audit Committee on page 63. to the longer-term aims around embedding
decisions. We assign clear accountability for sustainability deeply throughout our
managing our risks in the right way. It is the Focus in the year business. Our Risk Management global
responsibility of each market and function to The Diageo Executive and Board considered standard emphasises leadership behaviours
manage its risks directly, and then to report the risks described here as the group’s and on ensuring risk management is a basic
on the risks and their management to the principal risks for this financial year. Our part of doing business every day.
relevant Executive member. The Diageo principal risks fall into several categories Following the vote in the UK referendum
Executive reviews the effectiveness of risk and comprise operational, and essentially to leave the EU, we are building on our
management through the Audit & Risk internal, risks such as talent, to those existing risk planning, and work closely with
Committee, and the Board exercises responding to a fast changing and our industry bodies to seek clarity on the
independent review through the Audit increasingly volatile external environment, transition process.
Committee, supported by Global Audit including economic and political change, The Audit Committee also receives
& Risk. The Diageo Executive updates the and the risk posed by critical industry periodic updates on emerging or topical
group’s risk assessment annually, which developments. The increased focus on risks. During the year, the Audit Committee
international tax systems has been captured
is reviewed by the Board. Similarly, all received an update on data privacy, which
markets and functions perform annual risk in a separate risk. The fundamental explained the new EU General Data Protection
assessments and, at all levels in the business, importance of operating in the right way in Regulation, the broader global context of
risks are reviewed throughout the year, with everything we do is reflected in the risk on changing regulations in this area, and our
non-compliance with laws and regulations, plan for managing the associated risks.
Viability Statement annual report with a reasonable degree of • unfavourable exchange movements
In accordance with provision C.2.2 of the 2014 assurance while still providing a longer-term in foreign currencies, mainly the euro
revision of the UK Corporate Governance perspective. and US dollar against sterling, and also
Code, the Directors have assessed the The three-year business plan is based • potential failure to adapt to, or
prospects of the group over a longer period on our current strategy. This plan has been participate in, critical industry
than the 12 months required by the ‘Going stress tested by modelling severe but developments
Concern’ statement. The Directors confirm plausible downside scenarios linked to
The principal risks considered in the most
that they have a reasonable expectation principal risks. In order to reflect the most
likely combination of downside scenarios
that the company will continue to operate likely combination of principal risks affecting
are identified with the symbol V on
and meets its liabilities, as they fall due, over the business at one time, a combination of
page 20 and 21.
the next three years from 30 June 2016. the following scenarios was also modelled: Additional information for shareholders
Testing also considers the effectiveness
The Directors’ assessment has been made • severe marketing and/or route to market
of mitigation actions and internal control
by considering our current position and or fiscal changes are introduced by local
systems, makes certain assumptions about
prospects, our strategy, the Board’s risk governments,
temporary reduction in discretionary
appetite, and our principal risks and • the potential impact of material negative cash flows including capital expenditures
how these are managed, as set out on changes in the macroeconomic and dividend payments, and considers
pages 20–21 in the Strategic report. environment that could impact the whether additional financing facilities
Although the prospects of the company emerging markets, that generated will be required.
are considered over a longer period the 29% of our operating profit before Based on the results of this analysis the
Directors believe that a three-year exceptional items for the year ended Directors confirm they have a reasonable
assessment is most appropriate as it aligns 30 June 2016, expectation that the group will be able
with our normal and well established
• lower level of synergies captured from to continue in operation and meet its
three-year strategic business planning
the acquisitions that have been made liabilities as they fall due over the period
processes and presents readers of the
in recent years, to 30 June 2019.
20 DIAGEO Annual Report 2016 How we protect our business: Risk management and principal risks
Relevance to strategy
Efficient growth
Consistent value creation
Credibility and trust
Motivated people
Risk Impact How we mitigate Developments in 2016

1. Responsible alcohol • One or more • Our Alcohol in Society targets include • No significant new national regulations against
promotion and governments impose implementation of Global Producers’ alcohol, but restrictive national policies are being
restrictions on access Commitments to Reduce Harmful Drinking considered in several markets and three Indian states
consumption and/or increase tax and/ and increased focus on programmes in have introduced full or partial prohibition.
Failure to address the or duty. markets with measurable outcomes. • Several countries increased taxes to raise revenue
concerns of multiple
• Damage to our corporate • Strengthen industry response and stakeholder rather than reduce alcohol misuse.
stakeholders about the
reputation. engagement at global and local level. • We introduced new alcohol and nutrition Consumer
promotion and consumption
of alcohol. V • Increase knowledge about alcohol among Information Standards, and relaunched our
stakeholders and consumers by providing responsible drinking website, DRINKiQ, in 25 markets
information on packaging, online and via and 12 languages.
training courses. • We incorporated the Global Producers’ Commitments
to Reduce Harmful Drinking into our business
performance review cycle.
2. Economic and • Social unrest, liquidity •O

n-the-ground market and country • Workshop-based scenario planning exercises
political change issues, generalised intelligence to build local preparedness for undertaken in several higher volatility markets to
downturn, currency rapid change in external environment. strengthen response to uncertain conditions.
Significant local volatility instability, inflationary
or upheaval, uncertainty •M
arket visits by Chief Executive and other • Scenario planning tools introduced into our market
pressures, possible senior executives to review local strategy. risk management approach.
or failure to react quickly changes to customs
enough to increasing duties and tariffs and/or •M arket-sensitive multi-country investment and • UK referendum on EU membership has resulted in a
volatility, including the UK eroded consumer capacity expansion strategy, and local sourcing vote to leave the EU and is likely to result in a sustained
referendum on the EU. V confidence, impacting strategy (e.g. to minimise currency risk). period of economic and political uncertainty and
our people’s safety, our • Cross-functional steering group keeping risks complexity.
assets’ security, business of UK exit from the EU under review.
forecasting and/or
performance.
3. Critical industry • Consumers move away • Highly diversified portfolio of brands to ensure •O
ur mitigation approaches remain unchanged, and
developments from our brands. coverage of consumer trends. we have continued to deploy them in response to
industry changes.
Failure to shape or participate • Less efficient business • Continuous assessment and optimisation
in critical industry model compared to key of business efficiencies. • F or example, we are piloting a range of digital route-
developments. V competitors. • Rigorous processes of strategy development to-consumer technologies with technology partners.
and governance at corporate and market level.
• Systematic review of emerging consumer and
route-to-consumer trends including potential
disruptive technologies.
4. Talent • Failure to achieve our • S ignificant focus and intervention on moving • Increased rigour in succession planning process
growth plans. talent into key local roles in developing markets and more investment in pipeline development
Inability to recruit, retain and in accelerating development of high- (e.g. graduate proposition).
and develop sufficient potential emerging market talent.
commercial and marketing • Significant investment in commercial learning with
talent, especially in new areas • Strengthened learning and development multiple programmes to embed global commercial
(e.g. digital) and at senior strategy across the business. standards.
levels in developing markets. •P
roactive talent acquisition strategy for key • Targeted external searches resulting in deeper
risk areas. understanding of key talent segments and multiple
appointments in critical pipelines (e.g. Africa, beer,
digital).
5. Non-compliance • Severe damage to our •C

ode of Business Conduct (Code) and periodic • Further embedding control and compliance
with laws and corporate reputation training to refresh employees on our global frameworks in recent acquisitions.
and/or significant policies.
regulations financial penalty.
• Comprehensive Code refresh with global employee
• Internal control assurance programme, launch campaign.
Non-compliance with local
with local management accountability. • Enhanced automation of controls in our core business
laws or regulations, or breach
of our internal global policies • S trong tone from the top, anchored by processes through systems configuration and the
and standards and/or our Performance Ambition of ‘most trusted implementation of continuous monitoring technology.
significant internal control and respected’. • Implementation of an automated tool to improve the
breakdown. efficiency of our anti-bribery and corruption third
party due diligence programme.
How we protect our business: Risk management and principal risks DIAGEO Annual Report 2016 21
Risk Impact How we mitigate Developments in 2016
Strategic report
6. Sustainability • Long-term damage to • Sustainability & Responsibility Strategy based • Alignment of strategy to UN Global Goals and
& responsibility our corporate reputation on material issues and stakeholder introduction of impact framework to improve
and sustained expectations at global and market level. assessment towards 2020 targets, with market-based
Failure to meet the performance. roadmaps for 2020 target delivery.
• Programmed delivery against a clear set of
expectations of stakeholders
• Less influence shaping targets aligned to external stakeholders. • Introduction of human rights impact assessment
to make a positive
the citizenship and • Development of partnerships with external programme supporting UN Guiding Principles on
contribution to the
sustainability agenda as stakeholders to support delivery and scale Human Rights.
sustainability agenda.
it relates to beverage up of strategy. • Development of sustainable agriculture platform
alcohol. and stronger local raw materials sourcing.
• Water management embedded into supply chain, and
extension of Water of Life community programmes.
7. International tax • Increase in the cost of •O

ngoing review of business strategy and tax •P
reparation and development of process to comply
doing business arising policy in light of changing rules and with country by country reporting requirements
Significant changes to the
from an increase in our stakeholder expectations. •D
evelopment of process to comply with the new
international tax environment
Effective Tax Rate. •M
onitoring and, where appropriate, expressing transfer pricing documentation requirements.
such as the OECD Base
Erosion and Profit Shifting • Changing tax laws lead views on the formulation of tax laws either
Governance
initiative and EU anti-tax to unexpected tax directly or through trade associations or
abuse measures alter our exposures and similar bodies.
operating position. uncertainty.
8. Business • Business case for an • Board and Executive Committee regularly track • We have continued to monitor the M&A environment
acquisitions acquisition is not actual performance against the business case. and transact where appropriate.
delivered leading to • Global minimum standards for control and • Our focus has been on embedding recent acquisitions
Failure to deliver value from impairment charges and
acquisitions and/or integrate compliance for post-acquisition entities, (e.g. USL and Don Julio), making sure we have the right
failure to meet targets. subject to internal audit review. governance and integration platforms in place.
them into Diageo effectively,
including failure to embed • Market confidence in
Diageo’s standards of Diageo’s ability to deliver
compliance with laws, its strategy is weakened.
internal policies and • Prospects for securing
controls. V regulatory approval in
future are harmed.
9. Cyber threat • Financial loss, • Mandatory security training for all employees, • Strengthened rapid emergency response capability
operational disruption with new joiners automatically enrolled, and to tackle serious attacks and breaches.
Theft, loss and
and reputational follow-up of non-compliance. • Enhanced technical measures to block phishing
misappropriation of our most
damage. • Regular phishing exercise for high-risk employees. attacks.
important digital assets.
• Non-compliance with • Cyber crisis response exercises held to rehearse • Increased capacity to deal with network denial of
statutory data protection plans and train crisis teams. service attacks.
legislation.
• Use of security analytics to identify threats. • Stronger oversight of third party provider compliance
• Independent penetration testing to assess to our security standards.
effectiveness of security measures.
10. Politically • Diageo employees, • Monitoring of local security situation. • Standardised and strengthened above-market security
motivated violence sites or supply chain • In-country security managers oversee people assessment process.
threatened and/or security, physical security and business • Re-instigated intelligence analyst role to monitor
Impacts from politically harmed. continuity programmes. specific terrorist groups and high risk regions.
motivated violence,
• Our ability to operate in •A
bove-market travel security programme for • Improved understanding of terrorist cyber threat.
including terrorism.
key markets is disrupted. all Diageo travellers.
•A
bove- and in-market liaison with government, Additional information for shareholders
academia, and industry on evolving threats
and responding to incidents.
11. Data privacy • Harm to trust and/or • Data Privacy global risk assessment to • Publication of new EU General Data Protection
reputation of Diageo, understand full range of specific risks and Regulation (GDPR) in the Official Journal on 4 May
Breach of laws or regulations.
our brands or people. putting actions in place. 2016. A milestone in the regulation of people’s
• Fines of up to 2–4% • Briefings to Board, Executive and other senior personal information in the EU.
of global turnover. leadership on impact and implications of new • ‘Know Your Data’ global campaign launched with key
• Significant restriction EU Data Protection Regulation. steps for markets to identify and mitigate data risk.
in ability to deliver our • Use of Privacy Impact Assessments in key • GDPR workshops have begun in key business areas.
digital productivity and risk areas of business concerning the proper
growth plans. use of data.
22 DIAGEO Annual Report 2016 Group financial review
GROUP FINANCIAL REVIEW

This is a good set of results and reflects better execution across the business.
Our improved performance was driven by the return to growth of each of our
six global brands and our US spirits business. The delivery of volume growth; 19bps
of organic margin expansion; increased free cash flow; and the disposal of £1 billion
in non-core assets, comes from driving efficiency in every aspect of the business
and across every expense item to fuel future growth. I believe this consistent
approach to growth, productivity and cash will drive better value creation.
Kathryn Mikells, Chief Financial Officer
Organic results improved Volume Net sales(i) Operating profit(ii) Operating profit
with volume growth of before exceptionals(iii)
1.3%
Organic net sales growth of
2.8%
Organic operating profit growth of North America Europe Africa Latin America and Caribbean Asia Pacific
3.5% (i) Excluding corporate net sales of £36 million (2015 – £80 million).
(ii) Excluding corporate and ISC costs of £150 million (2015 – £139 million).
Net sales declined (iii) Excluding exceptional operating charges of £167 million (2015 – £269 million) and corporate and ISC costs before
3.0% exceptional items of £150 million (2015 – £123 million).
as organic growth in each region and Summary financial information 2016 2015
acquisitions were more than offset by Volume EUm 246.4 246.2
adverse exchange and disposals Net sales £ million 10,485 10,813
Operating profit grew Marketing £ million 1,562 1,629
Operating profit before exceptional items £ million 3,008 3,066
1.6% Exceptional operating items

Operating profit
Share of associates and joint ventures profit after tax
£ million
£ million
(167)
2,841
221
(269)
2,797
175
with organic growth, lower exceptional £ million
operating charges and acquisitions partially Non-operating items £ million 123 373
offset by adverse exchange and disposals Net finance charges £ million 327 412
Tax rate % 17.4 15.9
Free cash flow continued to be strong at Tax rate before exceptional items % 19.0 18.3
£2.1bn Profit attributable to parent company’s shareholders

Basic earnings per share
Earnings per share before exceptional items
£ million
pence
pence
2,244
89.5
89.4
2,381
95.0
88.8
up £134 million on last year Recommended full year dividend pence 59.2 56.4
Net cash from operating activities was Operating
£2.5bn
Volume Net sales Marketing profit(i)
Organic growth by region % % % %
North America 1 3 (2) 4
Basic eps of Europe, Russia and Turkey 2 4 5 6
Africa 9 3 1 (11)
89.5pence Latin America and Caribbean

Asia Pacific
Diageo(ii)
(2)
–
1
1
2
3
–
(12)
(2)
(1)
13
3
was down 6% as lower exceptional income
reduced basic eps by 6.1 pence. (i) Before exceptional items.
(ii) Includes Corporate. Corporate net sales in the year ended 30 June 2016 were £36 million (2015 - £80 million) a
Eps before exceptional items increased decrease of 55% due to the sale of the Gleneagles Hotel in June 2015. Net operating charges before exceptional
items were £150 million (2015 – £123 million), increased due to costs related to the productivity programme, the
1% reinvestment of the savings delivered by the organisational review announcement in January 2014, and increase
in the annual incentive plan costs. These increases were partially offset by increased profit on land sales.
to 89.4 pence
Group financial review DIAGEO Annual Report 2016 23
Net sales growth (£ million) Acquisitions and disposals
Strategic report
Acquisitions made in 2015 increased net sales in the year ended
Organic net sales growth of 2.8% driven by volume and mix
30 June 2016 by £90 million and operating profit by £22 million,
10,813 145 largely due to the acquisition of the remaining 50% shareholdings
131 10,485
90 in Don Julio and United National Breweries. Businesses which were
(172) (122)
(400) disposed of in the year ended 30 June 2015, primarily Bushmills and
Organic movement
Gleneagles, and those disposed of in the year ended 30 June 2016,
the sale of wines and certain beer assets, contributed net sales of
£655 million and operating profit of £121 million in the period ended
30 June 2015, and contributed net sales of £255 million and operating
2015 2016 profit of £25 million in the period ended 30 June 2016. The year
Exchange(i) Volume
on year movement on net sales was £400 million and £96 million
Disposals Price/mix on operating profit.
Acquisitions Asia Pacific net sales adjustment(ii)
Operating margin (%)
(i) Exchange rate movements reflect the translation of prior year reported results at Organic margin improved by 19bps
current exchange rates.
78bps
Governance
(ii) Diageo has reflected the full year impact of an accounting change USL made in its most
recent quarterly results to account for sales by third party manufacturers on a net sales
55bps 33bps 27.10%
basis. See page 25 for more details. 89bps
14bps
Net sales declined 3.0%. Adverse impact of exchange and disposals (114)bps
25.87% (32)bps
reduced net sales by 5.3%. These movements were partially offset
by organic net sales growth of 2.8% with volume growth of 1.3% Organic movement
and positive price/mix, primarily mix.
Net sales and operating profit were impacted by adverse 2015 2016
exchange movements driven by the weakness of a number of Exceptional operating items Marketing
currencies against sterling, in particular the Nigerian naira, the South Exchange Overheads
Acquisitions and disposals Asia Pacific net sales adjustment(i)
African rand, the Venezuelan bolivar, the Brazilian real and the Turkish Gross margin
lira, partially offset by the strengthening of the US dollar.
(i) Diageo has reflected the full year impact of an accounting change USL made in its most
Operating profit growth (£ million) recent quarterly results to account for sales by third party manufacturers on a net sales
Organic operating profit growth of 3.5% basis. It has no impact on gross profit or operating profit. See page 25 for more details.
102 Operating margin improved by 123bps mainly driven by lower

99 2,841 exceptional operating charges, a 19bps improvement in organic
2,797
22
(83) margin and the net sales adjustment in Asia Pacific. These
(96)
movements were partially offset by an adverse exchange impact.
Organic operating margin improvement was driven by favourable
mix, including the return to growth in North America which drove
gross margin improvement, as well as net procurement efficiencies
2015
after reinvestment in increased marketing activity. These benefits
2016
were partially offset by higher overheads driven by a year on year
Exceptional operating items Acquisitions
Exchange Organic movement increase in annual incentive plan costs and inflation.
Disposals
Operating profit growth of 1.6% was driven by organic growth,

acquisitions and lower exceptional operating charges (£167 million in
2016; £269 million in 2015). These movements were partially offset by
adverse exchange and the impact of disposals.

Basic earnings per share (pence) Free cash flow (£ million)

Eps before exceptional items increased from 88.8 pence to 89.4 pence Net cash from operating activities(i) was £2,548 million in 2016
a decline of £3 million on £2,551 million in 2015
95.0
3.95 1.83 3.39 89.5 Free cash flow was £2,097 million in 2016 an increase of £134 million
(6.14) (1.37) (0.82) 152
(3.33) (2.97) 137 93 5 2,097
1,963
(83) (170)
2015 2016
Exceptional items(i) Associates and joint ventures 2015 2016
Exchange on operating profit Finance charges
Capex Working capital movement
Acquisitions and disposals Tax
Exchange (ii) Interest and tax
Operating profit excluding Non-controlling interests
exchange Operating profit (iii) Other (iv)
(i) Exceptional items net of tax and non-controlling interests. (i) Net cash from operating activities excludes capex, loans and other investments
(collectively (£451) million in 2016 – (£588) million in 2015).
Lower exceptional income (£2 million in 2016; £156 million in 2015),
(i)
(ii) Exchange – on operating profit before exceptional items.
reduced basic earnings per share by 6.1 pence. Pre-exceptionals eps (iii) Operating profit excluding exchange, depreciation and amortisation,
post-employment payments and non-cash items but including operating
was up 0.6 pence as adverse exchange, net impact of acquisitions exceptional items.
and disposals, a higher tax rate and the increase in non-controlling (iv) Other items include post-employment payments, dividends received from
interests from higher operating profit in USL, were more than offset associates and joint ventures, loans and other investments.
by organic operating profit growth, higher associate income and Free cash flow improved £134 million driven by lower capex,
lower finance charges. Finance charges were lower on the fall in both increased operating profit before exchange, and lower interest
net interest charge and other financing charges. Net interest charges payments. The negative working capital movement was driven
declined from debt reduction and lower interest rates. Other finance by the year on year comparison to a significant reduction in
charges dropped due to lower hyperinflation charge for Venezuela receivables in 2015. This was partially offset by a favourable
as we moved to a consolidation rate which recognised the impact movement on inventory and payables.
of the inflation rate as well as the impact of lapping a £13 million
charge in 2015 in respect of an increase in value of Zacapa related Return on average invested capital (%)(i)
financial liabilities. ROIC decreased 22bps
Movement in net finance charges £ million 12.3%
47bps 14bps 3bps 12.1%
2015 412
(8)bps
Net interest charge reduction (51) (62)bps
Reduction in other finance charges (34) (16)bps
2016 327
2016 2015 2015 2016
Average monthly net borrowings (£ million) 9,245 10,459 Exchange Associates and joint ventures
Acquisitions and disposals Non-controlling interests
Effective interest rate(i) 3.3% 3.5% Operating profit excluding Other
exchange
(i) For the calculation of the effective interest rate, the net interest charge excludes fair
value adjustments to derivative financial instruments and borrowings. Average
monthly net borrowings include the impact of interest rate swaps that are no longer (i) ROIC calculation excludes exceptional items.
in a hedge relationship but excludes the market value adjustment for cross currency
interest rate swaps. ROIC before exceptional items decreased 22bps driven mainly
due to the adverse impact of exchange which was partially offset
The fall in average monthly net borrowings arose from disposals by the increased return from growth in operating profit and income
proceeds and continued strong cash flow. The effective interest rate from associates.
reduced in the year ended 30 June 2016 largely driven by changes
in financing in USL together with the repayment of Diageo bonds
with a higher interest rate.
Income statement Acquisitions
Strategic report
Exchange and disposals Organic Reclassifi-
2015 (a) (b) movement(ii) cation(iii) 2016
£ million £ million £ million £ million £ million £ million
Sales 15,966 (360) (362) 397 – 15,641
Excise duties (5,153) 188 52 (121) (122) (5,156)
Net sales 10,813 (172) (310) 276 (122) 10,485
Cost of sales(i) (4,585) 68 200 (56) 122 (4,251)
Gross profit 6,228 (104) (110) 220 – 6,234
Marketing (1,629) 13 17 37 – (1,562)
Other operating expenses(i) (1,533) 8 19 (158) – (1,664)
Operating profit before exceptional items 3,066 (83) (74) 99 – 3,008
Exceptional operating items (c) (269) (167)
Operating profit 2,797 2,841
Non-operating items (c) 373 123
Net finance charges (412) (327)
Share of after tax results of associates and joint ventures 175 221
Profit before taxation 2,933 2,858
Governance
Taxation (d) (466) (496)
Profit for the year 2,467 2,362
(i) Before exceptional operating items, see note (c) below.
(ii) For the definition of organic movement see page 50.
(iii) Following a review of the third party production arrangements in India it was determined to be more appropriate to ensure consistent reporting by reclassifying the excise
duties payable by the third party production companies as excise duties. This change was implemented by USL in its first three months of its financial year ended 30 June 2016,
and resulted in net sales for the year ended 30 June 2016 reducing by £122 million with a corresponding decrease in cost of sales. There was no impact on gross or operating profit.
(a) Exchange Gains/ 27 February 2015 and a joint venture in South

(losses)
The impact of movements in exchange rates £ million Africa on 29 May 2015.
on reported figures is principally in respect Translation impact (13)
of the Nigerian naira, the South African rand, (c) Exceptional items
Transaction impact (70)
the Venezuelan bolivar, the Brazilian real Exceptional operating charges in the year
Operating profit before
and the Turkish lira, partially offset by the ended 30 June 2016 totalled £167 million
exceptional items (83)
US dollar. before tax, a decrease of £102 million
Net finance charges –
Venezuela is a hyper-inflationary translation impact (17)
against last year.
economy where the government maintains Exceptional operating charges in the year
Mark to market impact of
a regime of strict currency controls with IAS 39 on interest expense (9)
ended 30 June 2016 included an impairment
multiple foreign currency rate systems. Impact of IAS 21 and IAS 39
charge in respect of the Ypióca brand and
Access to US dollar on these exchange on net other finance charges 2 related tangible fixed assets and goodwill
systems is very limited. The foreign currency Net finance charges (24) allocated to the Paraguay, Uruguay and Brazil
denominated transactions and balances of Associates – translation impact (4)
(PUB) cash-generating unit of £62 million, £14
the group’s Venezuelan operations are million and £42 million, respectively. Forecast
Profit before exceptional items
translated into the local functional currency and taxation (111) cash flow assumptions have been reduced
(VEF) at the rate they are expected to be principally due to a challenging economic
settled, applying the most appropriate Year Year environment in Brazil and significant adverse
official exchange rate. For consolidation ended ended changes in local tax regulation.
30 June 30 June
purposes, the group converts its Venezuelan 2016 2015 On 25 February 2016 the group
operations using management’s estimate of Exchange rates incurred an exceptional operating charge
the exchange rate that capital and dividend Translation £1 = $1.48 $1.57 of £49 million including a $75 million
repatriations are expected to be realised. Transaction £1 = $1.55 $1.58 (£53 million) payment to Dr Vijay Mallya
The consolidation exchange rate and the Translation £1 = €1.34 €1.31 over a five year period in consideration for
accounting treatment are monitored and Transaction £1 = €1.28 €1.23 (i) his resignation and the termination of his Additional information for shareholders
reviewed depending on the economic and appointment and governance rights and his
regulatory developments in the country. relinquishing of the rights and benefits
(b) Acquisitions and disposals
The effect of movements in exchange attached to his position as Chairman and
The impact of acquisitions and disposals
rates and other movements on profit Non-Executive Director of United Spirits
on the reported figures was primarily
before exceptional items and taxation for Limited (USL); (ii) his agreement to five-year
attributable to the disposals of The Old
the year ended 30 June 2016 is set out in the global non-compete (excluding the United
Bushmills Distillery Company Limited on
table below. Kingdom), non-interference, non-solicitation
27 February 2015, Gleneagles Hotels Limited
and standstill undertakings; and (iii) his
on 30 June 2015, Desnoes & Geddes Limited
agreement that he and his affiliates will not
(D&G) on 7 October 2015, the wine
pursue any claims against Diageo, USL and
businesses in the United States and the UK
their affiliates. In addition to the amount
Percy Fox wine business on 1 January 2016,
Diageo agreed to pay Dr Vijay Mallya there
which were partially offset by the acquisition
was net gain of £4 million arising from the
of 50% equity interests, that the group did
termination of certain related agreements,
not own, in both Don Julio in Mexico on
that were previously provided for less legal Namibia Breweries Limited (South African (d) Taxation
fees directly attributable to the settlement. associate interests) to Heineken. The net cash The reported tax rate for the year ended 30
In the year ended 30 June 2015 consideration received was £120 million, June 2016 was 17.4% compared with 15.9%
exceptional operating charges were which included the repayment of £31 million for the year ended 30 June 2015. The tax rate
£269 million before tax which comprised in respect of loans previously made to DHN before exceptional items for the year ended
£146 million in respect of a settlement Drinks and Sedibeng Breweries Limited. A 30 June 2016 was 19.0% compared with
agreement of disputes with the Korean loss before taxation of £27 million, including 18.3% in the prior year. It is expected that the
customs authorities, £82 million in respect a £30 million cumulative exchange loss, in tax rate before exceptional items for the year
of restructuring programmes and an respect of prior years, recycled from other ending 30 June 2017 will be 21%.
exceptional impairment charge of comprehensive income, was accounted for
£41 million in respect of the group’s 45.56% in the income statement. (e) Dividend
equity investment in Hanoi Liquor Joint On 30 September 2015, the group The group aims to increase the dividend at
Stock Company. completed the disposal of its shareholding each half-year and the decision as to the rate
Non-operating items in the year ended in Central Glass Industries Limited (CGI), a of the dividend increase is made with
30 June 2016 were a net gain of £123 million Kenyan glass bottle manufacturer, resulting reference to dividend cover as well as the
before tax compared to a gain of £373 million in a gain before taxation of £14 million, net current performance trends including top
before tax last year, a decrease of £250 million of £1 million transaction costs. £7 million of and bottom line together with cash
against last year. the gain is attributable to non-controlling generation. Diageo targets dividend cover
The year ended 30 June 2016 included interests. (the ratio of basic earnings per share before
an exceptional gain before taxation of A guarantee provided by Diageo for a exceptional items to dividend per share)
£457 million in respect of the sale of Diageo's loan of $135 million (£92 million) given by within the range of 1.8-2.2 times. For the year
57.87% shareholding in D&G (Jamaican Red Standard Chartered Bank (SCB) to Watson ended 30 June 2015 dividend cover was 1.6
Stripe business) and a 49.99% stake in GAPL Limited was called and $135 million paid times. Beginning with the interim dividend
Pte Limited (Singapore and Malaysian beer to SCB during the year. The underlying for the year ended 30 June 2016 we slowed
businesses) to Heineken, which completed security package for the loan remains in growth to 5% consistent with our focus on
on 7 October 2015. The gain is net of a place. A provision of $135 million has been stabilising and rebuilding dividend cover.
£13 million cumulative exchange loss, in made. Further details are set out in note 18. The recommended final dividend for the
respect of prior years, recycled from other In the year ended 30 June 2015 non- year ended 30 June 2016 is 36.6 pence, an
comprehensive income and transaction operating items included a gain of £63 increase of 5% consistent with our interim
costs of £7 million. As part of the transaction, million as a result of Don Julio becoming a dividend. This brings the full year dividend to
Diageo purchased an additional 20% subsidiary of the group and as part of the 59.2 pence per share and dividend cover to
shareholding in Guinness Ghana Breweries transaction, Diageo sold its wholly owned 1.5 times. We would expect to maintain
Limited (GGBL) from Heineken which subsidiary, The Old Bushmills Distillery dividend increases at roughly a mid-single
increased Diageo's shareholding in GGBL Company Limited to the Cuervo group, digit rate until cover is back in range.
to 72.42%. resulting in a gain of £174 million. A gain of Subject to approval by shareholders, the
On 1 January 2016, Diageo completed £103 million arose on the increase of the final dividend will be paid to holders of
the sale of the majority of its wine interests group’s investment in United Spirits Limited ordinary shares and ADRs on the register as
in the United States and its UK based Percy (USL) from 25.02% to 54.78% (excluding the of 12 August 2016. The ex-dividend date for
Fox businesses to Treasury Wine Estates. 2.38% interest owned by USL Benefit Trust). the holders of the ordinary shares is 11
Together with the sale of the group’s other On 30 June 2015, Diageo completed the August 2016, and 10 August 2016 for US ADR
wine interests in the United States the disposal of Gleneagles Hotel Limited to the holders. The final dividend will be paid to
transactions resulted in a loss before taxation Ennismore group resulting in an exceptional shareholders on 6 October 2016. Payment to
on disposal of £191 million including an gain of £73 million. In addition a provision US ADR holders will be made on 12 October
estimated provision for the settlement of a of £30 million was charged to the income 2016. A dividend reinvestment plan is
guarantee given in respect of the lease statement in respect of a guarantee provided available to holders of ordinary shares in
payments due to Realty Income Corporation, to a third party financial institution. respect of the final dividend and the plan
the lessor of the vineyards. The loss is net of Cash payments in the year ended 30 June notice date is 15 September 2016.
an exchange gain of £12 million, in respect 2016 for exceptional restructuring, for the
of prior years, recycled from other payment in respect of the Watson guarantee
comprehensive income and transaction (reported in ’movements in loans and other
costs of £8 million. investments’ in the consolidated statement
On 29 January 2016, Diageo disposed of of cash flows), for disengagement
its interests in Argentina to Grupo Peñaflor. agreements relating to United Spirits Limited
The transaction resulted in a loss before and for thalidomide were £52 million,
taxation of £38 million including a £92 million, £28 million and £12 million,
cumulative exchange loss of £20 million, in respectively. In the comparable period the
respect of prior years, recycled from other cash expenditure for exceptional
comprehensive income and other directly restructuring, for the legal settlement in
attributable costs of £7 million. Korea, for the guarantee and for thalidomide
On 1 December 2015, Diageo disposed were £117 million, £74 million, £30 million
of its 42.25% equity interests in DHN Drinks, and £19 million, respectively.
its 25% equity stake in Sedibeng Breweries
Limited and its 15.01% equity stake in
Movements in net borrowings In the year ended 30 June 2015 cash 2016 2015
Movement in equity £ million £ million
Strategic report
and equity payments primarily comprised £1,118 million
Equity at the beginning
Movement in 2016 2015 in respect of the acquisition of additional
of the year 9,256 7,590
net borrowings £ million £ million 26% investment in USL and £192 million for
Profit for the year 2,362 2,467
Net borrowings at the the 50% equity interest in Don Julio BV that
beginning of the year (9,527) (8,850) Exchange adjustments (a) 875 (225)
it did not already own, partially offset by
Free cash flow (a) 2,097 1,963 Net remeasurement of
cash received of £391 million in respect of
post employment plans (856) 113
Acquisition and sale sale of the Whyte and Mackay Group and
of businesses (b) 1,047 (306) Tax on post employment
£456 million on the sale of equity share
plans 166 (11)
Proceeds from issue capital in The Old Bushmills Distillery
of share capital 1 1 Exchange recycled to the
Company Limited.
income statement (b) 51 88
Net purchase of
own shares for share Fair value movements on
(c) Net purchase of own shares comprised available-for-sale
schemes (c) (1) (8) purchase of treasury shares for the future investments (20) 20
Dividends paid to settlement of obligations under the employee
non-controlling interests (101) (72) Non-controlling interests
share option schemes of £47 million (2015 – acquired (b) – 641
Purchase of shares £75 million) less receipts from employees on
of non-controlling Purchase of shares of
Governance
the exercise of share options of £46 million non-controlling interests (21) –
interests (d) (21) –
(2015 – £67 million). Disposal of non-
Disposal of non-
controlling interests – 1 controlling interest (24) –
(d) In the year ended 30 June 2016 Diageo
Net movements in Dividends to non-
purchased an additional 20% shareholding controlling interests (101) (72)
bonds (e) (1,003) (701) in Guinness Ghana Breweries Limited for
Net movements in Dividends paid (1,443) (1,341)
£21 million.
other borrowings (f) (233) 386 Other reserve movements (65) (14)
Equity dividends paid (1,443) (1,341) (e) In the year ended 30 June 2016, the group Equity at the end
Net increase/(decrease) 343 (77) repaid bonds of $1,500 million (£1,003 million). of the year 10,180 9,256
in cash and cash In the comparable period, the group repaid
equivalents bonds of €1,000 million (£792 million) and $500 (a) Movement in the year ended 30 June
Net decrease in bonds million (£330 million), issued bonds of €1,000 2016 primarily arose from exchange gains in
and other borrowings 1,236 315 million (£791 million), and a bond of £370 respect of the Indian rupee, Turkish lira, US
Exchange differences (g) (725) (7) million acquired on the purchase of USL was dollar and euro.
Borrowings on acquisition repaid using the proceeds from the sale of the
of businesses – (869) Whyte and Mackay Group. (b) In the year ended 30 June 2016 exchange
Borrowings disposed losses of £51 million were recycled to the
through sale (f) Net movements in other borrowings are income statement in respect of disposals.
of businesses 14 – driven by the net repayment of short term
Other non-cash items 24 (39) commercial paper. In the year ended 30 June 2015 following the
Net borrowings at the acquisition of majority equity stakes in USL,
end of the year (8,635) (9,527) (g) Net borrowings increased because of 50% equity interest in Don Julio and one of
unfavourable exchange differences primarily the group’s joint ventures in South Africa that
on the US dollar and euro denominated it did not already own exchange losses of
(a) See page 53 for the analysis of free cash flow.
borrowings partially offset by a favourable £88 million were recycled to the income
(b) Acquisitions and sale of businesses movement on foreign exchange swaps statement and on the acquisition of USL a
include the disposal of the group’s and forwards. 43.91% non-controlling interest of £641 million
shareholdings in D&G and GAPL on 7 was recognised.
October 2015 for a net cash consideration,
including disposal costs, of $783 million (£510 Post employment plans
million); the disposal of the group's equity The deficit in respect of post employment
stake in its South African associate interests plans before taxation increased by £934
on 1 December 2015 for a cash consideration million from £259 million at 30 June 2015 to
of ZAR 2,517 million (£119 million), net of £1,193 million at 30 June 2016. The increase
disposal costs; the disposal of the group’s primarily arose due to a decrease in returns
wine interests in the United States and its UK from ‘AA’ rated corporate bonds used to
based Percy Fox for a cash consideration of calculate the discount rates on the liabilities
$551 million (£375 million), net of disposal of the post employment plans (United
costs; and the proceeds from the sale of CGI, Kingdom reduced from 3.8% to 2.9% and
a Kenyan glass manufacturer, for KES 3,931 Ireland from 2.6% to 1.4%) partially offset by
million (£25 million), net of disposal costs. a reduction in long term inflation rates (UK
RPI from 3.2% to 2.8%, UK CPI from 2.2% to
1.8% and Ireland CPI from 1.6% to 1.4%).
Total cash contributions by the group to all
post employment plans in the year ending
30 June 2017 are estimated to be
approximately £200 million.
28 DIAGEO Annual Report 2016 Business reviews: North America
NORTH Net sales by markets

(%)
Net sales by categories
(%)
Net sales by price points
(%)
AMERICA
US Spirits Canada Spirits(i) RTDs Value Super premium

DGUSA Other Beer Other Standard Ultra premium
Wine Premium
(i) excluding RTDs
North America, the largest market Key financials Acquisitions

and Organic Reported
for premium drinks in the world, 2015 Exchange disposals movement 2016 movement
£ million £ million £ million £ million £ million %
accounts for about a third of our
Net sales 3,455 172 (159) 97 3,565 3
net sales and around half of Marketing 542 23 (14) (10) 541 –
operating profit. North America Operating profit before
continues to be a very vibrant exceptional items 1,448 77 (30) 56 1,551 7
market and we are focused on Exceptional
operating items (28) –
setting the business up for long- Operating profit 1,420 1,551 9
term growth. In the year, we
disposed of our wine assets in Manitoba; Tullahoma, Tennessee and States. Diageo Canada distributes our
the United States, and our new Louisville, Kentucky. Over the last five years, collection of spirits and beer brands across all
management team have made we have made significant changes to our Canadian provinces, which generally operate
supply footprint in North America as we through a provincial control system. Diageo
a number of changes to refocus
focus on continuously improving efficiency Canada operates through a single broker
marketing activity, upweight on across our supply chain. Since 2010 we have with a dedicated sales force handling our
premise activity, and enhance invested more than $250 million (£160 brands in the country. National brand
distributor relationships. million) in our network and people to strategy, strategic accounts marketing and
deliver world-class manufacturing and corporate functions are managed at the
Our markets packaging operations. North America level.
North America business is headquartered
in Norwalk, Connecticut, and comprises US Route to consumer Sustainability and responsibility
Spirits, Diageo Guinness USA (DGUSA) and Route to consumer in the United States is Through our focus on responsible drinking
Diageo Canada. through the three-tier system and we we have built a reputation as a leading voice
distribute our products through in the industry in North America, our largest
Supply operations approximately 40 spirits distributors and market. 2015 saw the successful culmination
We have nine bottling, distilling, blending brokers, and more than 400 beer distributors. of our 12-year campaign for alcohol
and maturation sites including operations We have a unique route to consumer for our companies to be allowed to include alcohol
in Plainfield, Illinois; Amherstburg, Ontario; spirits business in the United States, with content and nutritional information per serve
Valleyfield, Quebec; Relay, Maryland; Gimli, approximately 3,000 dedicated distributor on packaging. In October we followed this
sales people focused only on Diageo and by putting macro nutritional labels on our
Moët Hennessy spirits brands. We Crown Royal packaging – a first for any
consolidate our US Spirits business into a alcohol company.
single distributor or broker in 41 states and Operational sustainability is another key
the District of Columbia, representing more issue for us. We have introduced rigorous
than 80% of our US Spirits volume. water management procedures across our
The US Spirits business operates through North America sites. For example, at our
three divisions in open states where we sell George Dickel distillery in Tullahoma,
to distributors who then sell to retailers, and Tennessee, all water is either reused or
through two division in control states where returned to the local water source without
we sell to the state, which in turn sells to impact, resulting in zero wastewater leaving
state or agency stores and on premise the site. Our focus on improving energy
retailers. DGUSA sells and markets brands efficiency and reducing carbon emissions
including Guinness and Smirnoff Ice. Beer has made North America Diageo’s best-
distribution generally follows the three-tier performing region for this metric.
open state regulations across the United
Business reviews: North America DIAGEO Annual Report 2016 29
North America delivered net sales KEY HIGHLIGHTS largely driven by reserve variants, up 23%.
Strategic report
growth of 3%, following the expected • Net sales in US Spirits were up 3%, with Buchanan’s net sales were up 9% and
strong performance in the second half a 10% net sales increase in the second share increased, as the ‘A lo Grande’
in US Spirits. Full year depletion and net half following a transition to a campaign enhanced the connection with
sales growth in US Spirits was 3%. Growth replenishment model for innovation hispanic consumers. Increased
in North American whiskey, scotch and launches. Diageo’s North American investment in the on-trade and focus on
tequila drove positive mix. North American whiskey brands accounted for half of the recruiting new consumers amongst
whiskey, with net sales up 6%, was the overall net sales growth as Crown Royal millenials had a positive impact on
main driver of net sales growth as Crown and Bulleit continued to gain share. Captain Morgan, which gained share
Royal and Bulleit continued to gain share in Crown Royal net sales increased 5%, with despite weakness in the rum category.
the category. Performance of Smirnoff and net sales of Crown Royal Deluxe up 5% Net sales for the brand were up 2%,
Captain Morgan improved, with net sales as it benefited from the new “The One largely driven by the Original Spiced
up 2% for both brands. In scotch, Johnnie Made For A King” campaign which variant and Cannon Blast, which proved
Walker and Buchanan’s both performed focused on the quality and heritage of to be popular in the shot occasion. Don
well, with net sales up 7% and 9%, the brand. Crown Royal Regal Apple Julio, with net sales up 34%, was the
respectively. Reserve brands performance continued to benefit from the popularity fastest growing brand in the portfolio
also improved, with net sales up 5%, driven of the shot occasion and delivered a solid and gained share.
Governance
by Johnnie Walker reserve variants, Bulleit, performance, with net sales up 15%, as it • DGUSA net sales increased 1%, as
Don Julio and Ketel One vodka. Elsewhere entered its second year after launch. Cîroc growth in ready to drink offset a decline
in the region DGUSA net sales grew 1%, performance improved in the second in beer. In ready to drink the launch of
with growth in ready to drink offsetting a half, as the brand benefited from the Smirnoff Electric and a solid performance
decline in beer, and in Canada net sales launch of its Apple flavour. Smirnoff net of Smirnoff Ice, which benefited from
were up 4%. Marketing in North America sales were up 2% but it underperformed new flavours and packaging, drove net
was down 2% as a result of procurement the vodka category. Growth from a more sales growth of 7%. Beer net sales were
efficiencies and more focused spend on focused flavours portfolio and the newly down 3% largely driven by a decline in
innovation. Operating margin increased launched Smirnoff Sourced, a blend of Smithwick and Harp. Guinness net sales
39bps for the year, as improvement in real fruit juice and spirit, offset a decline were broadly flat as the launch of
gross margin and lower marketing more in Smirnoff Red which lapped last year’s Guinness Nitro IPA offset the net sales
than offset higher overheads. brand renovation and promotional decline of Guinness American Blonde
activity and continued to be impacted Lager, which lapped the previous year
by a competitive price environment. launch, and Guinness draught which
Performance in scotch improved as continued to be impacted by a crowded
Johnnie Walker’s net sales increased 7%, craft beer segment.
• Net sales in Canada increased 4%, largely
Reported Organic Reported driven by Crown Royal, which benefited
Organic volume volume net sales net sales from the launch of Crown Royal Northern
movement movement movement movement
Markets and categories: % % % % Harvest Rye, rated ‘2016 world whiskey of
North America 1 (1) 3 3 the year’ by Jim Murray’s Whiskey Bible,
distribution gains, and the ‘We Make
US Spirits 1 (1) 3 4 Whisky The Canadian Way’ campaign,
DGUSA – (3) 1 5 which highlights the brand’s quality and
Canada 2 2 4 (5) craftmanship. Performance in vodka and
Spirits(i) 1 1 3 8 ready to drink was also good, with net
Beer (3) (7) (2) (2) sales up 2% and 6%, respectively.
Ready to drink 4 1 5 7 • Marketing reduced 2% driven by
procurement efficiencies and more
Reported Organic Reported focused spend on innovations. Spend
volume net sales net sales
movement(ii) movement movement was also focused against the largest
Global giants and local stars(i): % % % Additional information for shareholders
brands in US Spirits, with investment in
Crown Royal 6 6 12 Smirnoff, Crown Royal and Captain
Smirnoff 1 2 6 Morgan up 6%, and fast growing brands
Captain Morgan 3 2 6 such as Don Julio, Bulleit and Buchanan’s
Johnnie Walker – 5 10 where investment was up 16%.
Ketel One vodka 2 4 10
Cîroc (6) (7) (1)
Baileys (2) – 4
Guinness – – 5
Tanqueray 5 7 13
Don Julio 30 34 42
Bulleit 25 28 36
Buchanan’s 3 9 16
(i) Spirits brands excluding ready to drink.
(ii) Reported equals organic volume movement.
30 DIAGEO Annual Report 2016 Business reviews: Europe, Russia and Turkey
EUROPE, Net sales by markets

(%)
(%)
(%)
RUSSIA AND
TURKEY
Europe Turkey Spirits(i) RTDs Value Super premium

Russia Other Beer Other Standard Ultra premium
Wine Premium
(i) excluding RTDs
Diageo is the largest premium Key financials Acquisitions

drinks business in Europe. Within 2015 Exchange disposals movement 2016 movement
the geography of Europe there
Net sales 2,617 (87) (88) 102 2,544 (3)
are three markets: Europe, Russia Marketing 388 1 (5) 20 404 4
and Turkey. In Europe consumer Operating profit before
marketing programmes are exceptional items 804 (24) (24) 45 801 –
developed at a market level to drive Exceptional
consistency, efficiency and scale Operating profit 784 801 2
across all countries. In Russia we
are driving our premium core, teams focusing on sales and customer where products are sold through a joint
standard and value brands and marketing execution. venture arrangement with Moët Hennessy
reserve portfolio, whilst in Turkey, and Europe Partner markets where we use
Supply operations third party distributors.
we use our local businesses’ strong
The International Supply Centre (ISC) Europe Partner Markets distributes our
route to consumer to drive comprises the supply operations in the United beer brands in mainland Europe, focusing
accelerated growth in international Kingdom, Ireland and Italy. The group owns on Germany, Russia and France, our largest
premium spirits. In Europe our 29 whisky distilleries in Scotland, a Dublin mainland European beer markets.
reputation as a trusted and based brewery, maturation and packaging In Russia we operate through wholly
facilities in Scotland, England, Ireland and Italy. owned subsidiaries.
respected company and for The ISC ships whisky, vodka, gin, rum, beer, In Turkey, we sell our products via the
groundbreaking innovation, is key wine, cream liqueurs, and other spirit-based distribution network of Mey İçki, our wholly
to our ability to attract and retain drinks to over 180 countries. Through our owned subsidiary. Mey İçki distributes both
the people we need to deliver our £1 billion investment in Scotch whisky local brands (raki, other spirits and wine) and
Performance Ambition. production and inventory, announced in 2012, Diageo’s global spirits brands.
distilling capacity has increased by over 25%.
Our markets Raki, vodka and wine are produced at a Sustainability and responsibility
Europe comprises Great Britain, Ireland and number of sites in Turkey and Smirnov vodka Promoting responsible drinking is both a key
Continental Europe (including Iberia, France, and other local brands are produced in Russia. issue and a key strength for us, in a region
Germany and the Europe Partner markets where concern over harmful drinking is high
distribution businesses), while Russia and Route to consumer on the public agenda. The work we are
Turkey are standalone markets. Europe is In Great Britain we sell and market our doing in support of the Global Producers’
managed as a single market with country products through Diageo GB (spirits, beer and Commitments includes partnering with
ready to drink) and Justerini & Brooks Retail industry colleagues on a responsible
(wines private clients). Products are distributed marketing pact, as well as our own responsible
through independent wholesalers and directly drinking programmes. This work makes an
to retailers. In the on-trade, products are sold important contribution to the promotion of
through major brewers, multiple retail groups alcohol as part of a balanced lifestyle, while
and smaller regional independent brewers also enhancing our reputation.
and wholesalers. On 1 January 2016 we sold This reputational aspect is essential in a
our Percy Fox wines distribution business. region where people increasingly want to
In the Republic of Ireland and Northern work for companies that they believe make a
Ireland, Diageo sells and distributes directly positive social and environmental, as well as
to the on-trade and the off-trade as well economic, contribution. Our manufacturing
as wholesalers. operations, notably our distilleries in Scotland
In Continental Europe, we distribute our and our Guinness brewery in Ireland, aim
spirits brands primarily through our own for leadership in safety standards and
distribution companies, apart from France environmental sustainability.
Business reviews: Europe, Russia and Turkey DIAGEO Annual Report 2016 31
The region’s performance reflects KEY HIGHLIGHTS – In Continental Europe net sales were
Strategic report
momentum in Europe, strong net sales • In Europe net sales were up 3%: up 4%:
growth in Russia driven by price increases Net sales in Iberia were up 2%. Johnnie
– In Great Britain net sales were up 4%.
in a tough economic and exchange Walker net sales grew 6% in the year and
Baileys performance accelerated with net
environment and good growth in Turkey. Baileys performed strongly supported by
sales up 11% driven by increased off-trade
In Europe, net sales were up 3% with Great increased investment. Gordon’s net sales
visibility and on-trade activation. Smirnoff
Britain and Continental Europe the main were also up in the growing gin category.
net sales were up 1% supported by a
contributors and with share gains across These positive net sales performances
full year of the ‘We’re Open’ platform.
the market. Baileys performed strongly more than offset net sales decline in JεB.
Guinness net sales were up 1%
driven by execution against core growth Net sales in Germany, Austria and
benefitting from the Rugby World Cup
drivers, especially sampling. Guinness net Switzerland grew 12% driven by double
activation, improved distribution and
sales were up 2% supported by digit growth in Johnnie Walker, Smirnoff,
innovation successes from ‘The Brewers
innovations from ‘The Brewers Project’ Tanqueray and Baileys. Reserve brand net
Project’. Tanqueray net sales grew double
and Tanqueray grew net sales double digit sales were up 11% driven by scotch malts,
digit and the brand gained 2pps of share
in most countries across Europe. Reserve Johnnie Walker and Tanqueray No. TEN.
in the gin category, driven by expanding
brands continued to perform well also Benelux net sales were down 1% overall
distribution with improved visibility and
growing double digit. In Russia, price in this group of countries. Performance
increased bartender advocacy. Reserve
Governance
increases led to net sales increase of 27% was impacted by a significant tax increase
brands continued to drive profitable
while volume was down 9%, with share implemented towards the end of the first
growth with net sales up 26% driven by
gains in rum but share losses in scotch half in Belgium. As a result, the spirits
Cîroc and scotch malts.
in the face of increased competition. market in Belgium has seen a significant
– In Ireland net sales were broadly flat.
In Turkey net sales were up 6% driven by decline through the second half which
Guinness net sales were up 4%, driven
Johnnie Walker underpinned by steady led to a 26% net sales decline over the
by the continued successful innovations
growth in raki at 3%. Gross margins were same period.
launched through ‘The Brewers Project’.
up in both Europe and Russia. Overall In Italy net sales were up 8% driven
Of these, Hop House 13 Lager has proven
region operating margins improved by by double digit growth in scotch and
to be a stand out success gaining almost
51bps. In Europe procurement savings gin. Johnnie Walker and scotch malts
3% share of lager beer in the Republic of
offset increased marketing and overheads performed well with both Tanqueray and
Ireland. Other beer brands net sales
leaving margin improvement in Russia to Gordon’s delivering strong growth albeit
declined 4% and net sales in spirits
drive the region’s increase. not as fast as the gin category.
were down 1%.
In Greece, net sales were up 5% driven
– In France net sales increased 3% driven
by route to consumer investment and
by Captain Morgan which almost
focus on consistent activation.
doubled sales and reserve brands up
Net Sales in Poland and the Europe
8%, driven mainly by scotch malts,
Partner Markets were broadly flat.
partially offset by weakness in Smirnoff
– Performance in Russia continued to be
ready to drink.
impacted by the challenged economic
dynamics. Price increases were
implemented to offset currency
devaluation, which impacted volume,
Reported Organic Reported down 9% but with net sales up 27%.
Organic volume volume net sales net sales
movement movement movement movement Diageo scotch share has declined as a
Markets and categories: % % % % result of the level of these price increases
Europe, Russia and Turkey 2 – 4 (3) on scotch relative to the competition.
Europe 4 – 3 (2) Captain Morgan however continued to
Russia (9) (12) 27 (12)
achieve strong share gains and net sales
Turkey (2) (2) 6 (7)
growth, supported by consistent
execution of growth drivers and the
Spirits(i) 2 1 6 – launch of Captain Morgan white. Additional information for shareholders
Beer 2 – – (2) – In Turkey net sales grew 6% and in raki,
Ready to drink 2 2 (3) (2) with net sales up 3%, the premiumisation
trend continued with Yenì Raki and the
Reported Organic Reported super premium variant Tekirdağ Raki
movement(ii) movement movement driving growth. Johnnie Walker net sales
Global giants and local stars(i): % % % continued to be up double digit.
Guinness 4 2 1 – Marketing increased by 5% and
Johnnie Walker 3 7 3 benefitted from procurement savings
Smirnoff – 1 – resulting in an underlying investment
Baileys 5 9 6 increase of 10%. The region continues
Yenì Raki 1 4 (9) to be focused on the key growth
Captain Morgan 8 9 5 opportunities, reserve brands, gin,
JεB (3) (4) (6) beer and innovation.
32 DIAGEO Annual Report 2016 Business reviews: Africa
AFRICA Net sales by markets

(%)
(%)
(%)
Nigeria South Africa Spirits(i) RTDs Value Super premium

East Africa Other Beer Other Standard Ultra premium
Africa Regional Premium
Markets
(i) excluding RTDs
In Africa our strategy is to grow Key financials Acquisitions

Diageo’s leadership across beer 2015 Exchange disposals movement 2016 movement
and spirits by providing brand
Net sales 1,415 (102) 54 34 1,401 (1)
choice across a broad range of Marketing 147 (11) 6 1 143 (3)
consumer motivations, profiles, Operating profit before
and occasions. We are focused exceptional items 318 (67) (12) (27) 212 (33)
on growing beer faster than the Exceptional
market and accelerating the Operating profit 311 212 (32)
growth of spirits through
continued investment in Supply operations Benin, Burkina Faso, Chad, Mali and Guinea.
infrastructure and brands with We operate 12 breweries in Africa, four sites Diageo sells spirits through distributors in the
mainstream spirits being critical that produce sorghum beer in South Africa, majority of other sub-Saharan countries.
cider plants and five facilities which provide
to realising the potential of the
blending and malting services. In addition, Sustainability and responsibility
region. Local sourcing is a key our beer and spirits brands are produced The issues we address differ between
element of our strategy in Africa: under licence by third-parties in 19 African markets but a key issue in many is illicit
it directly supports our commercial countries. In the year ended 30 June 2016 alcohol. We work closely with governments
operations, while indirectly we sold our 25% interest in a brewery in and regulators on this significant public
South Africa. health issue and specific local issues, such as
supporting our position by drink driving in South Africa or bringing in a
bringing wider benefits to Route to consumer minimum legal drinking age in Ghana. Our
society as a whole. In Africa our largest businesses are in Nigeria, aim everywhere is to promote responsible
where we own 54.3% of a listed company drinking as part of a balanced lifestyle.
Our markets whose principal brands are Guinness, Orijin, Our overall approach is to consider the
The region comprises Nigeria, East Africa Harp and Malta, and in East Africa, where we broader context of our contribution as a local
(Kenya, Tanzania, Uganda, Burundi, Rwanda own 50.03% of East African Breweries Limited taxpayer, employer and member of the
and South Sudan), Africa Regional Markets (EABL). EABL produces and distributes beer community. Our recent work to assess
(including Ghana, Cameroon, Ethiopia, and spirits brands to a range of consumers in human rights impacts throughout the value
Angola and a sorghum beer business in Kenya and Uganda, and owns a 51% equity chain was piloted in Kenya. We source 73%
South Africa) and South Africa (including in Serengeti Breweries Limited located in of agricultural materials locally and we work
Republic of South Africa and Mozambique). Tanzania. Within Africa Regional Markets, with more than 50,000 local farmers for our
we have wholly owned subsidiaries in agricultural inputs. Fifteen of our production
Cameroon, Ethiopia and Reunion and sites in Africa are in water-stressed areas, so
majority-owned subsidiaries in Ghana and we focus closely on managing water
the Seychelles. Angola is supplied via a efficiently and enhancing access to clean
third party distributor. In South Africa and water to surrounding communities through
Mozambique we sell spirits, beer, cider and our pan-African Water of Life programme.
ready to drink products through wholly This year we launched the Water Blueprint in
owned subsidiaries, following the East Africa, to address water stewardship in
termination of the agreement with Heineken this water-stressed area. Our new Sustainable
and Namibia Breweries Limited in December Agriculture Strategy will play an important
2015. Diageo has agreements with the Castel part in strengthening our longstanding and
Group who license, brew and distribute mutually beneficial relationships with farmers
Guinness in the Democratic Republic of and communities.
Congo, Gambia, Gabon, Ivory Coast, Togo,
Business reviews: Africa DIAGEO Annual Report 2016 33
Net sales increased 3% with growth in all the ‘Made of Black’ campaign, robust • In Africa Regional Markets, net sales
Strategic report
markets except Nigeria where net sales activation during the broadcast grew 9% reflecting the strong growth in
declined 15%. In East Africa, the recovery sponsorship of Barclay’s Premier League Cameroon, Ghana and Ethiopia. Ghana
of Senator in Kenya following the duty and innovation with Guinness Africa net sales growth accelerated to 30% due
change and double digit growth in rum Special led to the growth of Guinness. to the launch of Orijin Bitters and ready to
and vodka led to strong net sales growth. Malta Guinness also grew, with net sales drink variants. Beer, driven by Guinness,
Net sales in Africa Regional Markets grew up 15%, on the back of ‘You vs’ brand was up 9% as activation and promotion
9%, led by beer which was underpinned campaign and increased distribution was stepped up behind the ‘Made of
by the ‘Made of Black’ Guinness campaign, particularly into the off-trade. The Black’ campaign and Guinness Africa
innovation with Guinness Africa Special, business continued to broaden its Special was rolled out. In Cameroon, net
sustained growth of Malta Guinness and portfolio in the value lager segment with sales growth of 12% was driven largely
the roll out of Orijin in Ghana. Vodka, brands such as Satzenbrau offsetting the by good performance in beer coupled
particularly Smirnoff 1818, continued to decline in Harp. Beer net sales grew 8%. with double digit growth in spirits and
be the engine of growth in South Africa. • In East Africa, net sales increased 16% ready to drink categories. In Ethiopia, net
Across the region, spirits net sales grew driven by double digit growth in beer, sales grew 8% with Malta Guinness up
4%, with reserve brands up 35% on the spirits and ready to drink. Senator grew in 71%. This more than offset the slight
back of Cîroc and Johnnie Walker reserve Kenya following the roll back of the duty decline in Meta as competition intensified.
Governance
brands which benefited from the increase early in the year and momentum A number of interventions were made,
enhanced route to consumer and the was sustained throughout the year. This including relaunching Meta in November
launch of Johnnie Walker Green Label. more than offset the decline in Tusker, and introducing Azmera in April 2016 to
Operating margin decreased 252bps due which was impacted by the duty increase recruit value oriented consumers. Markets
primarily to the impact of adverse mix and in Kenya and currency volatility in the continued to benefit from the enhanced
volume decline in Nigeria as well as weaker markets, resulting in 17% net sales growth route to consumer and capability builds,
mix in East Africa. This was partially offset in beer. Mainstream spirits grew 26% led including the adoption of a sales force
by procurement savings delivered across by Kenya Cane and Kane Extra, together automation tool. Angola net sales
the region. with innovation such as Kenya Cane declined 65% due to the macroeconomic
Coconut and Chrome vodka. The headwinds and inventory reduction in
KEY HIGHLIGHTS improved route to consumer, with view of weakening consumer demand
• In Nigeria, net sales declined 15% due deepening mainstream outlet coverage, and weaker currency.
primarily to Orijin lapping the successful continued to drive growth in this • South Africa grew 5% driven by 13%
launch last year and now competing with segment. Reserve brands grew 24% growth in vodka led by Smirnoff 1818.
'me too' brands. The introduction of new following enhanced distribution and Overall, scotch sales were flat reflecting
formats at compelling price points, brand activation supported by brand the weaker performance of Bell’s, White
equity building through the ‘Live Orijinal’ ambassadors. Ready to drink was up 14% Horse, J&B and Black and White due to
campaign and the recruitment of new as Smirnoff Ice Double Black and Guarana increased competition in this price
consumers with Orijin Zero have grew with positive gearing driven by sensitive consumer segment. This was
stabilised the brand. In beer, distribution price increase. offset by 9% growth in Johnnie Walker
expansion, higher brand equity driven by across key variants such as Johnnie Walker
Reported Organic Reported
Red Label, Johnnie Walker Black Label,
Organic volume volume net sales net sales Johnnie Walker Gold Label Reserve and
movement movement movement movement Johnnie Walker Green Label which was
Markets and categories: % % % %
Africa 9 19 3 (1)
launched in the second half of the year.
• Marketing was up 1% in the region with
Nigeria (11) (11) (15) (19) investment prioritised behind the biggest
East Africa 25 25 16 3 growth opportunities with proven sales
Africa Regional Markets 11 57 9 23 drivers. In Nigeria, marketing declined in
South Africa 1 5 5 (6) line with net sales, with spend focused
Spirits(i) 2 2 4 (7) on the Guinness and Orijin brands.
East Africa up-weighted investment Additional information for shareholders
Beer 20 39 11 9
Ready to drink (37) (23) (43) (35) on mainstream spirits and value beer,
notably in Kenya Cane and Senator. In
Reported Organic Reported Africa Regional Markets, the innovation,
volume net sales net sales marketing campaigns and activation
movement(ii) movement movement
Global giants and local stars(i): % % % programmes behind Guinness and Malta
Guinness 6 6 1 Guinness contributed to the increase in
Malta Guinness 14 13 10 marketing. South Africa maintained spend
Tusker (15) (11) (27) in Smirnoff to build scale and increased
Senator 151 157 134 investment behind Johnnie Walker.
Harp (23) (26) (28)
Johnnie Walker (10) 1 (7)
Smirnoff 6 12 (4)
34 DIAGEO Annual Report 2016 Business reviews: Latin America and Caribbean
LATIN Net sales by markets

(%)
(%)
(%)
AMERICA
AND
CARIBBEAN
PUB Mexico Spirits RTDs Value Super premium
Venezuela West LAC Beer Other Standard Ultra premium
Colombia Other Wine Premium
In Latin America and Caribbean Key financials Acquisitions

the strategic priority is continued 2015 Exchange disposals movement 2016 movement
leadership in scotch, while
Net sales 1,033 (134) (41) 5 863 (16)
broadening our category range Marketing 194 (26) (1) – 167 (14)
through vodka, rum, liqueurs and Operating profit before
local spirits. We continue to invest exceptional items 263 (57) (5) (2) 199 (24)
in routes to market and in the Exceptional
operating items(i) (5) (118)
breadth and depth of our portfolio Operating profit 258 81 (69)
of leading brands. We are also (i) The impairment of Ypióca in 2016.
enhancing our supply structure
to enable the business to provide Our markets In Mexico, Diageo sells directly to large
Our Latin America and Caribbean (LAC) retailers and wholesalers.
both the emerging middle class business comprises five markets: PUB In selected markets in West LAC, we sell
and an increasing number of (Paraguay, Uruguay and Brazil), Venezuela, to wholesalers or distributors, while in key
wealthy consumers with the Colombia, Mexico and WestLAC (Central markets, such as Costa Rica, Dominican
premium brands they aspire to. America and Caribbean, Argentina, Chile, Republic, Jamaica and Argentina we use
Peru, Ecuador and Bolivia). exclusive distributors.
In this region’s changing regulatory
landscape, our presence is Supply operations Sustainability and responsibility
supported by our reputation as a The majority of brands sold in the region are Diageo is known throughout Latin America
trusted and respected business, manufactured by our International Supply for our commitment to developing an
based on our stance on responsible Centre in Europe. In recent years, we have industry that can bring economic and social
acquired a number of supply operations and value to society. Our work includes
drinking, and community
expanded our co-packer network across the programmes to combat key issues such as
development programmes like region. In 2015 we acquired the remaining underage drinking and drink driving – two
Learning for Life. 50% equity interest in Tequila Don Julio in of the five Global Producers’ Commitments
Mexico, which resulted in full ownership of – and illicit alcohol. Programmes such as
the brand and its production facilities. In Actuando Mejor in Mexico, and Today I don’t
2012 we acquired Ypióca in Brazil, including drive in Brazil are making a tangible
its cachaça production site, and in 2011 we difference in reducing alcohol-related harm.
acquired a controlling interest in Anejos de In the Dominican Republic, we are also
Altura (Guatemala) which produces Zacapa. working closely with the industry and
We also have partnerships with over 12 government to tackle drink driving. This
brewers and over 20 co-packing partners. social commitment is echoed in our focus
throughout the region on employability,
Route to consumer skills and empowerment. Our flagship
We sell our products through a combination community re-investment programme,
of subsidiary companies and third party Learning for Life, is providing skills and
distributors. In Brazil, our in-market company training – including responsible service – to
sells directly to key accounts and distributors. more than 100,000 people across the region.
All products in Venezuela are sold
through dedicated distributors. In Colombia
we sell directly to key accounts, and serve
all other retailers and channels through
distributors.
Business reviews: Latin America and Caribbean DIAGEO Annual Report 2016 35
Net sales grew 1% in LAC. Growth in Mexico, vodka and cachaça, driven primarily by volume growth across core variants such
Strategic report
Colombia and the domestic markets of West the slowing economy, a tax increase in as Johnnie Walker Red Label, Johnnie
LAC was partially offset by the decline in December 2015, currency volatility and Walker Black Label and Johnnie Walker
Brazil, travel retail and the export channels. a slowdown in the duty free channel. reserve brands including the newly
In Brazil, performance was impacted by Despite the challenging operating launched Johnnie Walker Green Label.
subdued consumer confidence, a tax environment, the business gained share In mainstream scotch, Black and White
increase and significant slowdown in the in scotch, delivered through Johnnie net sales grew supported by expanded
travel retail channel, which resulted in a 7% Walker and Black and White marketing distribution and activation across the on
decline in net sales. Performance in Mexico campaigns. The business continued and off-trade. Following the execution of
and Colombia was strong with net sales up to invest behind the Smirnoff trademark the new Smirnoff strategy to build the
10% and 28% respectively, led by scotch and in music festivals and trade activations, brand’s credentials through participation
vodka. Currency weakness and lower as well as the rejuvenation of Ypióca. in music festivals and increasing
underlying demand continued to impact Net sales in Paraguay and Uruguay activation across the on-trade, Smirnoff
the West LAC export channels. Diageo’s declined due to reduced demand in the net sales doubled and share increased in
strategy in LAC is to expand our leadership export and travel retail channels given the last six months. Don Julio also gained
position in scotch and broaden our currency volatility. share in the year reflecting the successful
portfolio. Scotch net sales grew 2%, led by • Colombia delivered 9% volume growth marketing campaign, activation and
Governance
Buchanan’s and Black and White, with share and 28% net sales increase, on the back higher brand awareness.
gains in most markets. Net sales of Johnnie of favourable mix and successive price • West LAC net sales declined 3% primarily
Walker declined with weakness in PUB and increases following the currency due to weakness in the export channels.
West LAC partially offset by strong growth in devaluation. Scotch was the key growth Domestic markets’ net sales were stable
Mexico and Colombia. Vodka net sales grew driver, with double digit growth and with growth in Peru, Chile and Jamaica
8% driven primarily by growth in Mexico, share gains. The portfolio in Colombia offset by a decline in Central America and
Colombia and the domestic markets in West continues to broaden with gin, vodka and Caribbean. In Peru, net sales grew 16%,
LAC. Don Julio gained share supported by tequila net sales growing double digit. led by increases in Johnnie Walker Red
increased activity to build brand awareness Label, Johnnie Walker Black Label and
• Mexico net sales increased 10%. Scotch
and drive recruitment in Mexico. Gross Old Parr, underpinned by the marketing
was a key growth driver with net sales up
margin improved, benefitting from mix as campaigns and activations around gifting
17%, reflecting strong volume growth
well as procurement savings across logistics for Christmas and Father’s Day. Scotch
and price increase. Buchanan’s was up
and production. This was offset by higher was also a key engine behind Chile’s net
20% following the relaunch of the brand
overheads resulting in operating margin sales growth of 9%. Johnnie Walker Red
with the ‘Good versus Great’ campaign,
decline of 39bps. Label and mainstream scotch such as
the introduction of new packaging and
strong activations around Father’s Day VAT 69, Old Parr and White Horse grew
KEY HIGHLIGHTS
with ‘A Great Father A Great Day’ following distribution expansion as well
• In Paraguay, Uruguay and Brazil as improved trade visibility. Central
campaign. Similarly, Johnnie Walker net
(PUB), net sales declined 9%. In Brazil, net America and Caribbean net sales
sales grew double digit on the back of 8%
sales were down with declines in scotch, contracted 4% given currency volatility
across the market.
Organic volume volume net sales net sales • In Venezuela, volume increased 4%
Markets and categories: % % % % driven primarily by strong growth in rum
Latin America and Caribbean (2) (5) 1 (16) as the business resumed production of
local spirits following the stabilisation
PUB (5) (5) (9) (27) of glass supply. This was offset by the
Colombia 9 9 28 – decline in scotch as access to foreign
Mexico 10 19 10 7 currency remains constrained. Net sales
West LAC (2) (17) (3) (20) grew significantly faster as the business
Venezuela 4 3 173 (69) increased prices in a high inflation
environment and transacted some
Spirits(i) (2) (2) 1 (12) Additional information for shareholders
scotch sales in sterling.
Beer 23 (41) 14 (60)
Ready to drink (11) (12) – (20) • Marketing increased broadly in line with
net sales. Spend in Brazil was reduced in
Reported Organic Reported view of the weaker economic outlook.
movement(ii) movement movement Mexico increased spend by 9%, investing
Global giants and local stars(i): % % % behind Smirnoff and scotch to build
Johnnie Walker (8) (4) (15) brand equity and enhance activations.
Buchanan’s (5) 9 (7) In Colombia, incremental spend was
Smirnoff – 6 (19) invested behind Johnnie Walker,
Old Parr (15) (1) (17) Buchanan’s and Smirnoff ready to drink
Baileys (3) (1) (14) to support the Smirnoff Ice Green Apple
Ypióca (6) (6) (28) flavour launch.
Black and White 48 63 34
(ii) Reported equals organic volume movement except for Smirnoff 4%.
36 DIAGEO Annual Report 2016 Business reviews: Asia Pacific
ASIA Net sales by markets

(%)
(%)
(%)
PACIFIC
South East Asia Global Travel, Spirits(i) RTDs Value Super premium
Greater China Asia and Beer Other Standard Ultra premium
India Middle East Wine Premium
Australia
North Asia
(i) excluding RTDs
Our strategy in Asia Pacific, which Key financials Acquisitions

encompasses both developed and 2015 Exchange disposals movement Net sales 2016 movement
£ million £ million £ million £ million adjustment(ii) £ million %
emerging markets, is to operate
Net sales 2,213 (21) (28) 34 (122) 2,076 (6)
across categories in international Marketing 344 – (1) (42) 301 (13)
spirits, local spirits, ready to drink Operating profit
formats and beer. We focus on the before exceptional
highest growth categories and items 356 (5) – 44 395 11
Exceptional
consumer opportunities, driving operating items(i) (193) (49)
continued development of super Operating profit 163 346 112
and ultra premium scotch, and (i) Disengagement agreement relating to USL in 2016.
leveraging the emerging middle (ii) For further detail see page 25.
class opportunity through a in India and further 34 are licensed to we operate through third party distributors.
combination of organic growth produce USL and Diageo brands. In addition, In North Asia, we have our own distribution
and selective acquisitions. we have bottling plants in Korea, Thailand, company in South Korea, whilst in Japan, the
Indonesia and Australia with ready to drink majority of sales are through joint venture
Our markets manufacturing capabilities. agreements with Moët Hennessy and Kirin.
Asia Pacific comprises South East Asia Airport shops and airline operators are
(Vietnam, Thailand, Philippines, Indonesia, Route to consumer serviced through a dedicated Diageo sales
Malaysia, Singapore, Cambodia, Laos, In South East Asia, spirits and beer are and marketing organisation. In the Middle
Myanmar, Nepal and Sri Lanka), Greater China sold through a combination of Diageo East, we sell our products through third
(China, Taiwan, Hong Kong and Macau), India, companies, joint venture arrangements, and party distributors.
Global Travel Asia and Middle East, Australia third party distributors. In Thailand, Malaysia
(including New Zealand), and North Asia and Singapore, we have joint venture Sustainability and responsibility
(Korea and Japan). arrangements with Moët Hennessy, sharing Asia Pacific is a region of many and varied
administrative and distribution costs. Diageo markets, and our 21-market business model
Supply operations operates wholly owned subsidiaries in the enables us to address key issues and
We have distilleries at Chengdu, in China Philippines and Vietnam. In Vietnam we own opportunities by market. Within the context
that produce Chinese white spirit and in a 45.56% equity stake in Hanoi Liquor Joint of the Global Producers’ Commitments, our
Bundaberg, Australia that produce rum. Stock Company. In Indonesia, Guinness is responsible drinking programmes focus on
United Spirits Limited (USL) operates 27 brewed by, and distributed through, third the issues highest on the agenda in each
owned manufacturing facilities in India party arrangements. country. For example, in Indonesia and
including one in Nepal, leases 13 facilities In Greater China the majority of our Vietnam we focus particularly on illicit alcohol;
brands are now sold through our wholly in India on drink driving; in Australia on
owned subsidiary. Some brands are consumer information and preventing
distributed through a joint venture underage and binge drinking. Our new
arrangement with Moët Hennessy. In DRINKiQ site, launched in January 2016, was
addition, we are the sole distributor of Shui particularly well received in Australia.
Jing Fang, a super premium Chinese white Likewise we tailor our sustainability
spirit, through our controlling 39.71% equity programmes to each market. Our operations
stake in a listed company. Diageo operates in India have the highest concentration of
a wholly owned subsidiary in Taiwan. sites in water-stressed areas, so water, and
In India, we manufacture, market and sell the wider ‘WASH’ agenda is a key focus there.
Indian whisky, rum, brandy and other spirits In Thailand and China, female empowerment
through our 54.78% shareholding in USL. is a significant issue, which we address
Diageo also sells its own brands through USL. directly through our ‘Plan W’ programme.
In Australia, we manufacture, market and
sell the Diageo products and in New Zealand
Business reviews: Asia Pacific DIAGEO Annual Report 2016 37
Net sales in Asia Pacific grew 2% as a KEY HIGHLIGHTS Challenge and McDowell’s No. 1 were
Strategic report
result of growth in India, South East Asia • South East Asia net sales were up 16% relaunched during the year performed
and Australia. In China, Chinese white as it lapped the inventory reduction last and contributed to growth with Royal
spirits grew while scotch declined and the year. In Thailand performance improved Challenge net sales up 54%. Scotch
shift towards lower ABV products in Korea after a weak first half with net sales grew 17% as Black Dog grew 23% and
led to a decline in net sales. Global Travel growing in the second half as the launch Johnnie Walker grew 22% with strong
Asia and Middle East business declined of Smirnoff Midnight 100 ready to drink performance in Johnnie Walker Black
primarily due to the geopolitical offset the decline in scotch, which gained Label, Johnnie Walker Red Label and
developments in the Middle East. The share in a declining category. In Indonesia Johnnie Walker Blue Label. The integration
changes made to improve performance in net sales increased 1% as Guinness grew of Diageo´s brands into USL has created
USL led to net sales growth of 5% in India, due to the focus on the on-trade post an exceptionally strong brand portfolio
largely driven by growth in IMFL whisky regulations restricting sale of alcohol in in India that participates across all price
and scotch. Net sales in South East Asia the off-trade were introduced last year. tiers in the IMFL and imported spirits
grew 16% as the inventory reduction Vietnam was impacted by the special segments. As a result of the focus on
experienced last year ended. Australia consumption tax on imported products route to consumer, 20% of outlets are
net sales grew 2% driven by scotch and introduced in January 2016 resulting in a now meeting ‘perfect outlet’ standards
Guinness. Reserve brands net sales grew net sales decline of 35%. Reserve brands driving recruitment and brand building.
4% largely driven by the strong
Governance
performance was strong with net sales Gross margin improved 99bps with the
performance of Shui Jing Fang in China up 27% led by Johnnie Walker Gold Label growth of prestige and above brands
and Johnnie Walker in South East Asia. Reserve and Johnnie Walker Blue Label. driving positive mix and productivity
Margin improved 176bps as a result of initiatives that reduced the cost of goods
• Greater China net sales were down 2%.
reducing marketing in India with the sold. Operating margin improved 702bps
In mainland China, scotch declined 42%
termination of USL related party as a result of gross margin improvement,
as the continued weakness in premium
agreements, and for Johnnie Walker Black lower marketing and the sale by USL of
scotch in the traditional on-trade channel
Label and Johnnie Walker Blue Label in United Breweries Limited shares.
resulted in distributors reducing
China. The sale by USL of United Breweries • Global Travel Asia and Middle East
inventory, although Diageo gained share
Limited shares also contributed to net sales declined 15% largely driven by
in the super deluxe scotch segment.
operating margin expansion. the Middle East where net sales declined
Chinese white spirits net sales grew 19%
as growth in the second half was lower 20% as geopolitical developments led to
due to a tougher prior year comparison. weak performance in the domestic and
In Taiwan net sales grew 8% driven by travel retail business. Global Travel Asia
growth in Johnnie Walker. net sales declined 7% as a result of lower
spend by travellers and currency volatility.
• India net sales were up 5%, driven by
the premiumisation strategy with good • Australia net sales increased 2% with
growth in Prestige and above brands growth in scotch, vodka, liqueurs and gin
and popular brands net sales flat. Royal offsetting the decline in the ready to
drink business. In rum, strong growth of
Captain Morgan both in ready to drink
Reported Organic Reported and spirits categories, offset the decline
Organic volume volume net sales net sales in Bundaberg. Reserve brands were up
Markets and categories: % % % % 7% largely driven by Johnnie Walker, as
Asia Pacific – (3) 2 (6) consumers continue to premiumise
within the spirits category.
India – (4) 5 (11)
• North Asia net sales were down 5%. In
South East Asia 3 3 16 15
Korea, net sales declined 10%, as Windsor
Greater China (5) (5) (2) –
suffered from increased competition in
Global Travel Asia and Middle East (9) (9) (15) (14)
the traditional on-trade with net sales
Australia 2 2 2 (5)
down 20% which offset growth from
North Asia 6 6 (5) (6)
W-Ice, an innovation in the growing lower
Spirits(i) – (3) 1 (7) ABV premium whisky segment. In Japan,
Beer 8 8 7 4 net sales were up 8% largely driven by
Ready to drink (3) (3) (3) (8) scotch net sales growing 21% capitalising
on the growth of the brown spirits
volume net sales net sales segment.
Global giants and local stars(i): % % % • Marketing was 12% lower driven by
Johnnie Walker (4) (2) (2) reductions on Johnnie Walker Black Label
McDowell's (2) – (16) and Johnnie Walker Blue Label in China
Windsor (4) (10) (12) and India where marketing reduced as
Smirnoff (4) (7) (9) a result of termination of USL related
Guinness 8 7 4 party agreements.
Bundaberg (5) (3) (10)
Shui Jing Fang 55 20 22
(ii) Reported equals organic volume movement except for McDowell’s 0%.
38 DIAGEO Annual Report 2016 Business reviews: Category review
CATEGORY Volume Net sales Marketing spend
REVIEW
Scotch North Rum Liqueurs Tequila Ready Other

Vodka American Indian Made Gin Beer to drink
whisk(e)y Foreign
Liquor (IMFL)
• Scotch represents 24% of Diageo net Key categories Reported volume Organic net sales Reported net sales
movement(iii) movement movement
sales and was flat in the year. Net sales % % %
grew in North America, Europe and Latin Spirits(i) (1) 3 (1)
America and Caribbean driven by Johnnie Scotch (3) – (4)
Walker and Buchanan’s supported by new Vodka(ii) – 1 2
campaigns. Net sales declined in Africa; North American whisk(e)y 4 6 12
primarily in Angola, and in Asia Pacific Rum(ii) 2 3 (3)
driven by declines in China and Korea. Indian-Made Foreign Liquor
The performance of Black and White was (IMFL) whisky (5) 3 (11)
strong with net sales up 31%. Windsor net Liqueurs 1 3 2
sales declined double digit in Korea due Gin(ii) 3 8 6
to the decline of the whisky category. Tequila 15 8 28
Scotch reserve brands net sales grew Beer 21 6 1
7% driven by strong growth in Johnnie Ready to drink (9) (11) (11)
Walker Gold Label Reserve, Johnnie (i) Spirits brands excluding ready to drink.
Walker Blue Label and Johnnie Walker (ii) Vodka, rum, gin including IMFL brands.
(iii) Reported equals organic volume movement except for IMFL whisky (1)%, Tequila (17)%, Beer 13% and Ready
Green Label. to drink (13)%.
• Vodka represents 13% of Diageo’s net
sales and grew 1%. Performance of Global giants, local stars Reported volume Organic net sales Reported net sales
Smirnoff, the largest brand in the and reserve(i): % % %
category, improved growing 2%. Ketel Global giants
One vodka returned to growth in the Johnnie Walker (4) 1 (3)
United States and Canada supported by Smirnoff 1 2 –
a new campaign and pricing strategy. Baileys 2 4 3
In addition, Cîroc performance improved Captain Morgan 4 3 5
from the first half driven by the success Tanqueray 11 12 15
of Cîroc Apple in the United States. Guinness 4 4 2
• North American whisk(e)y represents Local stars
8% of Diageo’s net sales and grew 6%. Crown Royal 5 6 11
Performance continued to be driven Yenì Raki 1 4 (9)
by strong growth in Crown Royal Regal Buchanan’s (2) 10 1
Apple and Bulleit which continue to JεB (6) (9) (12)
gain share in the United States. Windsor (4) (10) (12)
Old Parr (13) 1 (14)
• Rum represents 7% of Diageo’s net sales Bundaberg (6) (3) (10)
and grew 3%. Captain Morgan grew 3% Bell’s – (1) (10)
driven by the base variant Original White Horse (11) 6 (15)
Spiced rum growing 3% and the Cannon Ypióca (6) (6) (28)
Blast launch going well in the United Cacique 25 9 (24)
States. Kenya Cane, a mainstream rum in McDowell's (2) – (16)
Kenya, and Zacapa also contributed to Shui Jing Fang 55 20 22
the growth. Reserve
Scotch malts 8 7 6
Cîroc (2) (3) 2
Ketel One vodka 4 4 10
Don Julio 25 18 40
Bulleit 27 29 36
(ii) Reported equals organic volume movement except for White Horse (9)%, Don Julio (13)% and McDowell’s 0%.
Business reviews: Category review DIAGEO Annual Report 2016 39
• IMFL whisky represents 5% of Diageo’s • Global giants represent 40% of Diageo • Local stars represent 19% of net sales
Strategic report
net sales and grew 3%. The relaunches net sales and grew at 3%. and grew 3%, due to Crown Royal in
of two of the biggest brands Royal – Johnnie Walker net sales grew 1% due North America growing 6% and
Challenge and McDowell’s No.1 drove to reserve brands growing 10% driven Buchanan’s up 10%, largely in North
this growth with Royal Challenge net by Johnnie Walker Gold Label Reserve, America and Mexico. Growth in Yenì Raki
sales up 55% due to the relaunch. Johnnie Walker Blue Label and Johnnie in Turkey and Shui Jing Fang in China
• Liqueurs represents 5% of Diageo’s net Walker Green Label. Europe and North largely offset the declines in Windsor in
sales and grew 3%. Baileys, the leading America were the largest contributors Korea and JεB.
brand in this category, grew 4% due with 7% and 5% growth, respectively. In • Reserve brands represent 15% of net
to 9% growth in its biggest market, Latin America and Caribbean, double sales and grew 7%. The return to growth
Europe. The key growth drivers were on digit growth in Mexico and Colombia was in the second half was a result of the
premise visibility, focused media content more than offset by decline in Brazil. In improved performance of Cîroc driven
and sampling. Asia Pacific, double digit growth in India by the success of Cîroc Apple in the
• Gin represents 3% of Diageo’s net sales and South East Asia was offset by United States. Scotch reserve brands
and grew 8%. Tanqueray was the largest declines in the Middle East, Global Travel grew 7% with Johnnie Walker driving the
contributor growing double digit, and China. growth particularly in the United States
followed by Gordon’s. – Smirnoff net sales grew 2%, as it where it grew 23% and scotch malts
Governance
returned to growth in the United States, growing 7%. Bulleit continued its strong
• Tequila represents 1% of Diageo’s net
the biggest market, where net sales were growth with net sales 29%. Net sales
sales and grew 8%. The performance was
up 2%. In Europe, performance improved of Shui Jing Fang were up 20% and
driven by continued double digit growth
versus the first half and net sales grew Tanqueray No. TEN grew 26%.
of Don Julio in its biggest market, the
1%. South Africa and Mexico also • In Africa there are four local beer brands
United States.
delivered strong growth on Smirnoff Senator, Malta Guinness, Tusker and Harp.
• Beer represents 18% of Diageo’s net growing double digit. Their performance is covered in the
sales and grew 6% driven by strong – Baileys net sales grew 4%, driven by 9% Africa section.
performance in Africa where net sales growth in Europe with the brand growing
grew 11%. Key contributors were East double digit in Great Britain, Iberia,
Africa and Nigeria. Strong growth of Germany and Austria.
Senator following the excise duty – Captain Morgan net sales grew 3% due
remission grew sales in East Africa. In to a strong performance in Europe and
Nigeria, Malta Guinness, Pilsner and value Russia. In the United States net sales grew
brand Satzenbrau delivered a strong 2% and it gained share in the category
performance. Europe grew 2% on driven by increased on premise activity
Guinness driven by the effectiveness of and the launch of Captain Morgan
the ‘Made of More’ advertising campaign, Cannon Blast.
innovations like Hop House 13 lager from – Tanqueray net sales grew 12% with
‘The Brewers Project’ and strong Europe and North America accounting
activation around the Rugby World Cup. for more than two thirds of the growth.
• Ready to drink represents 6% of All other regions also delivered
Diageo’s net sales and declined 11%. This strong growth.
was largely driven by the decline in Orijin – Guinness net sales grew 4%. In Nigeria
in Nigeria. The decline was partially offset net sales grew 3% driven by the success
by a good performance in Smirnoff Ice of the ‘Made of Black’ campaign and
flavours in the United States driven by activation against the football viewing
new marketing programmes and the occasion. In Cameroon and Ghana net
launch of Orijin in Ghana and Cameroon. sales increased double digit. Guinness
In Thailand, the Smirnoff Midnight 100 also gained share and increased net sales
launch continued to progress well. in Great Britain and Ireland supported by
the ‘Brewers Project’ innovations. Additional information for shareholders
40 DIAGEO Annual Report 2016 Sustainability & Responsibility review
OUR ROLE IN SOCIETY

Sustainability &
Responsibility review
In a year which has Put into action this year, the targets underpin and contractors, to the consumers who buy
our commitment to addressing the issues our brands. We want to make sure that
seen unprecedented most material to our stakeholders, and to throughout that chain – wherever we source,
international focus on us as a business: make and sell – we are making a positive
• Creating a positive role for alcohol contribution which is aligned with the UN
the developmental and in society by marketing responsibly, Global Goals and supports our core business.
climate challenges facing putting our resources and skills into
programmes that prevent and reduce Focus on impact and execution
the world, we began a new harmful drinking, working with others Our 2020 targets are designed to create
chapter in our approach to raise awareness and change people’s shared value and contribute broadly to the
attitudes and behaviour, and providing UN’s Global Goals. Metrics for each target
to sustainability and the information consumers need to make evaluate the impacts of our initiatives. This
responsibility. Building informed decisions about drinking as part reflects a renewed focus on co-ordinating
of a balanced lifestyle, or choosing not our efforts to achieve outcomes that bring
on our long tradition of to drink the maximum possible value for our
contributing to society • Building thriving communities by stakeholders, and for us. Our new Social
Impact Framework is a critical tool for
as a company with strong empowering people throughout our
value chain, including our employees – evaluating impact and focusing investment,
governance and ethics, increasing their access to opportunity, described further in the ‘Building thriving
communities’ section on page 42.
our new 2020 targets to resources and to skills
• Reducing our environmental impact
focus on the issues that by using natural resources responsibly
Focus on partnership
A key way to achieve greater impact is to
matter most: creating a in our operations and throughout our
work with partners who add value to our
supply chain, with a particular emphasis
positive role for alcohol on water.
programmes and initiatives. This year we
have developed new partnerships with
in society; building We see these priorities as interdependent. UNITAR, USAID, and the NGO WaterAid,
thriving communities; We recognise that we will only succeed in among others, details of which can be
playing a positive role if we take a holistic found in the relevant sections below.
and reducing our approach to addressing all three, while
environmental impact. continuing to act as a good corporate citizen Focus on human rights
with exemplary governance and ethics. Our commitment to human rights
throughout our value chain is fundamental
Making a positive contribution to who we are and how we do business.
We’re proud of the brands we make and the In the expanded ‘Human rights’ section
enjoyment our products give to millions of on page 42, we describe our work to assess
people. And we create value in many other our human rights impact.
Our 2020 sustainability and responsibility ways as well.
targets enable us to make a positive We directly employ around 32,000 people. Focus on diversity and inclusion
contribution to society – and support our Our partners employ many more, supporting Diversity and inclusion have always been a
ambition to be one of the best performing, our global manufacturing, distribution, sales priority for us, and this year we have gone
most trusted and respected consumer and marketing operations. This year we paid further than ever to ensure that we are an
products companies in the world. They were over £4 billion in taxes and other duties to open, fair, and welcoming business. Details
developed to help us support the UN’s governments. Our manufacturing sites play are in the ‘Diversity and inclusion’ section
Global Goals and World Health Organization crucial roles in their local communities. on page 43.
(WHO) programmes on health, such as the We have interdependent relationships
Global Action Plan for the Prevention and throughout our value chain, from the farmers
Control of Non-Communicable Diseases. who grow our ingredients, to our employees
Sustainability & Responsibility review DIAGEO Annual Report 2016 41
Focus on water and sustainable drinking and drinking during pregnancy.

Our 2020 target
Strategic report
agriculture Diageo shares the goal set by the WHO of
The first full year of our Water Blueprint reducing harmful drinking by 10% across Industry collaboration
(see page 46) and the development of our the world by 2025 in an effort to reduce Implement Global Beer, Wine and Spirits
new Sustainable Agriculture Strategy (see non-communicable diseases. Producers’ Commitments to reduce
page 45) are significant milestones in our Working with others is essential to this Harmful Drinking, including actions on:
efforts to evaluate and reduce our impacts effort. Our partnerships with international • Reducing underage drinking
along our entire value chain and to build organisations, governments, law • Strengthening and expanding
thriving communities. enforcement agents, educators, parents and marketing codes of practice
civil society allow us to gain important • Providing consumer information and
Beyond 2020 insights and to reach more people. responsible product innovation
While our targets are set for 2020, our This year Diageo entered into a two-year
partnership with the UN Institute for Training • Reducing drink driving
strategy is designed to support Diageo’s
overall growth and performance for many and Research (UNITAR) to contribute to • Enlisting the support of retailers
years to come. It aims to help grow our reducing death and injuries from traffic to reduce harmful drinking.
brands’ relationships with consumers and accidents. The project will target more than
others, strengthen our supply chain, reduce 60 countries with a focus on those with the KPI:
Governance
our costs, and mitigate long-term risk. highest road traffic death rates. Accenture has developed 19 KPIs
In the year that saw the launch of the In 2016, we supported 335 programmes for all signatories to the Commitments,
UN’s Global Goals for sustainable to reduce harmful drinking in 55 countries. published in the annual Commitments
development and the Paris Agreement on Highlights include the Diageo-supported report and assured by KPMG.
climate change, our strategy helps prepare industry campaign in Spain, ‘Minors Not a The 2015 (latest available) annual
us for a future in which the only successful Single Drop’, which won the White Cross of report on the Commitments (see
business models will be those that can the Order of Merit granted by the Minister of www.producerscommitments.org)
demonstrate a positive contribution to Health, and Diageo India’s road safety shows progress against all action areas
people and the planet. programme, which received the Prince particularly underage drinking. For
Michael International Road Safety Award. example, there was a 50% increase in the
number of underage education initiatives,
CREATING A POSITIVE Giving consumers information
Diageo believes that responsible and
which are now available in 86 countries,
compared with just 57 in 2014. These
ROLE FOR ALCOHOL moderate drinking can be part of a balanced programmes directly engaged nearly
IN SOCIETY lifestyle, and we want to provide our 30 million unique adult influencers such as
consumers with the information, tools parents, teachers, and community leaders
We’re proud of what we do – and fully aware and resources to make informed choices. on the importance of respecting legal age
of our responsibilities. Ensuring that alcohol Our Diageo Consumer Information limits on buying alcohol. Producers also
plays a positive role in society matters to Standards, launched in June 2016, provide worked with key stakeholders to enforce
everyone at Diageo – and as a business it mandatory minimum standards for the legal purchase age laws where they exist
is our most material issue, at the heart of information that must be included on labels and to implement laws where they do not.
our licence to operate, and essential to our and packaging on all Diageo-owned brands
performance. in all geographies (where legally permitted). country sites and is available in 12 languages.
We work to reduce harmful drinking, Labels and packaging must include alcohol The refreshed site is making more information
promote rigorous company and industry content and nutrition information per serve, available to more people, especially via mobile.
standards for responsible marketing, and alcohol content by volume, at least one and
provide consumers with information to help up to three responsible drinking symbols, a Responsible marketing
them make responsible choices. reference to our global responsible drinking The Diageo Marketing Code and Digital
website, DRINKiQ.com, a list of allergens, and Code are our mandatory minimum standards
Reducing harmful drinking recycling and sustainability symbols. We are for responsible marketing, and we review
We seek to raise awareness and shift the first in our industry to put this level of them every 12–18 months to ensure they
attitudes and behaviour to encourage information in the hands of consumers, represent best practice. The Diageo Additional information for shareholders
informed choices around drinking – demonstrating our desire to be a true Marketing Code was refreshed this year.
or not drinking. Our programmes cover a leader in helping consumers make informed Five industry bodies publicly report
wide range of issues depending on local decisions. breaches of their self-regulatory codes.
concerns and include initiatives to prevent In January 2016 we relaunched This year, Diageo was found in breach by
drink driving, underage drinking, binge DRINKiQ.com, which now has 25 specific the ASA in the UK for a Smirnoff television
advertisement on the grounds that the
social occasion depicted depended on the
Complaints about advertising upheld by Industry Complaints presence of alcohol. We were also found in
complaints upheld about
industry bodies that report publicly (2015) upheld Diageo brands breach by the ASAI in Ireland for a post on
Australia Alcohol Beverage Code 10 0 the Guinness Facebook page on the grounds
Ireland Advertising Standards Authority for Ireland (ASAI) 7 1 that it suggested that drinking may have
United Kingdom The Portman Group 1 0 therapeutic benefits. In both cases, the
Advertising Standards Authority (ASA) 5 1 marketing material was immediately
United States Distilled Spirits Council of the United States (DISCUS) 1 0 withdrawn.
Our 2020 target visitor experience at the Guinness Based on this, during the year, we
Impactful programmes Storehouse in Dublin. It will deliver developed a robust and comprehensive
• Going beyond industry DRINKiQ training on responsible drinking human rights impact assessment (HRIA)
commitments, we will work in to around 300,000 visitors from across approach with a toolkit to support markets
partnership to support programmes the world each year. In the first two through a systematic review of their
to address harmful drinking in our months since launch, we have reached businesses to identify and assess potential
top 19* countries. We will evaluate 21,000 people. human rights impacts. The HRIA considers
these initiatives for efficacy and our entire value chain from sourcing to
impact and report on the results. selling, and helps us focus our activities
* Number of countries reduced from 20 to 19 BUILDING THRIVING on any areas of concern.
We conducted our first HRIA in Kenya
following the sale of our Jamaican Red Stripe
business (Jamaica having been one of our top COMMUNITIES in February, and as a result we are
countries).
strengthening our processes to prevent
We create value for millions of people as a risks in areas such as land rights and labour
KPI: buyer of goods and services, as an employer, standards in agriculture. We also used the
Number of countries that evaluate as corporate citizens, and as producers of Kenya process as a pilot, and are now
responsible drinking programmes. some of the world’s best-loved brands. developing our approach for conducting
This year, 84% of our top 19 countries We want to continue to help the HRIAs in other markets.
assessed the effectiveness of their communities we live and work in thrive: by
programmes, measuring increases making Diageo a great, safe, and diverse
in awareness or shifts in attitudes or place to work; by building sustainable supply Empowering and enabling communities
behaviour. While evaluating our projects chains; and through programmes that through our programmes
to determine reach is important, we empower communities and individuals and
continue to work with markets to create increase their access to opportunity. We have a long history of direct investment in
impact and to put in place robust long-term, actively-managed programmes
mechanisms to evaluate that impact. Human rights that address the developmental challenges
We have developed and rolled out a facing the communities where we source,
measurement and evaluation toolkit Our commitment to, and respect for, human make, and sell our products. Our programmes
supporting these efforts. rights throughout our value chain is support the three main strands of our strategy,
For examples of our evaluation in fundamental to who we are and how we do which align with the UN Global Goals:
action, please see the ‘Our role in society’ business. Our business is built on long-term
section of our website. • Enabling entrepreneurship,
relationships based on trust and shared value. employability and skills
We have a clear policy which sets out our
commitment to human rights. We do not • Improving health and wellbeing,
Our 2020 target tolerate discrimination, harassment, bullying including through access to clean
Training or abuse; we comply with wage and working water, sanitation and hygiene
• Reach 1 million adults with training time laws; we respect our employees’ • Helping to empower women.
materials that will enable them to decisions to join or not join a trade union;
become responsible drinking (RD) and we do not tolerate forced or compulsory Delivering impact
ambassadors. labour. We will not work with anyone, This year Diageo invested £16.3 million or
including any supplier, who does not adopt 0.6% (2015 – 0.6%) of operating profit to
KPI: these values. charitable projects that help serve critical
Number of adults, above legal drinking local need.
age, who have completed interactive We want our programmes to have impact
Our 2020 target
training (face-to-face or online) on – it is how we will drive change. Working with
responsible drinking, serving, selling, • Act in accordance with the UN partners magnifies our impact. For example,
and marketing. Guiding Principles on Business our new partnership with WaterAid helps
This year we reached 380,622 people, and Human Rights. support access to clean water and sanitation,
through training programmes such as and we have also announced a partnership
DRINKiQ, Learning for Life, Diageo Bar We are signatories to the UN Guiding with USAID on a joint programme in
Academy, Plan W and others. We are well Principles on Business and Human Rights Colombia, building skills for veterans to
on our way to meeting our 1 million (UNGP). These set clear expectations around support the country’s transition and growth,
target, with more than 700,000 RD monitoring and management of human and on farmer training in South Sudan.
ambassadors created in the past two rights. In 2015 we partnered with Business Our partners have welcomed our new
years. Our training programmes reach a for Social Responsibility, a global not-for- Social Impact Framework (SIF), launched this
broad audience including consumers, profit consultancy, to help articulate year, because it enables them and us to
retail and hospitality industry workers, our human rights vision and strategy. We measure and evaluate the impact of our
police and government agency personnel, conducted a corporate level assessment, programmes. The SIF, which we developed
and members of the medical profession. which included mapping all our existing with input from three of our partner NGOs in
This year, we also launched an interactive policies, processes, and procedures against 11 countries, provides a clear guide for the
version of DRINKiQ as part of the overall the UNGP requirements. consistent implementation of programmes
within our overall strategy. It uses key
performance indicators to quantify the
impacts of programmes, allowing us to
identify and measure potential benefits and Sadly, in December 2015, a contractor fell to
Community investment by focus area1
Strategic report
make a stronger case for investment. Our SIF his death at our Ogba facility in Nigeria while
is also helping us to ensure we quantify the carrying out maintenance work at height.
full value of each of our existing programmes We have long recognised our responsibility
which have hitherto concentrated on a to contractors and visitors to our sites, and
particular area. include them in our Severe and Fatal Incident
Prevention (SFIP) programme, which is
Our 2020 target designed to identify and eliminate severe
• Our community programmes enable and fatal risks in our operations, and has
those who live and work in our significantly reduced the number of severe
communities, particularly women, accidents. However, it is under constant
to have the skills and resources to review and, since this tragedy, we have
Community aspects of responsible drinking projects2 46% conducted an in-depth review of SFIP
build a better future for themselves. Brand-led and local community spend3 21%
We will evaluate and report on the Learning for Life 20%
compliance across Africa, in particular of
tangible impacts of our programmes. Water of Life 7% contractors working at heights, to prevent
Plan W 6% accidents like this happening elsewhere.
KPI:
Governance
As part of the SIF we developed detailed Community investment by region1 Our 2020 target
impact metrics, and are currently Keep our people safe by achieving less
working to determine appropriate KPIs than one LTA per 1,000 employees and
for each of our programmes, which will no fatalities.
report in 2017.
Our programmes include: KPI:
• Water of Life – this programme has Number of LTAs; number of fatalities.
reached more than 10 million people This year we continued to drive
in 18 countries in Africa since 2006. It is significant improvement across the
focused on access to water, sanitation business through our Zero Harm
and hygiene (WASH) in line with UN programme, with a 13% reduction in
Global Goal 6: ‘Clean water and LTAs, resulting in an LTA rate of 1.44. We
North America 38%
sanitation’, and is increasingly active Europe and global functions 26% focused particularly on embedding our
in rural areas that supply raw materials Asia Pacific and GTME 14% programme in the recently acquired USL
to our business. This year we provided Latin America and Caribbean 14% business in India. We also focused on
Africa 8%
access to safe water and sanitation our non-manufacturing sites to bring
to 351,700 more beneficiaries. 1
This excludes our legacy commitment to the their safety record closer to that of our
Thalidomide Trust and the Thalidomide Foundation
• Plan W – this programme aims to Ltd of £10.2 million which in prior years we included manufacturing sites, many of which are
empower women, both our employees as part of our community investment data. recording record low levels of safety
2
This is a sub-section of the total responsible incidents. Some of our locations, such as
and those in our wider value chain, and drinking budget.
enable them to play a greater role in 3
Category includes cause-related brand campaigns, South East Asia and Venezuela, achieved
local market giving and disaster relief. zero LTAs this year, while two of our
the economy – this contributes to UN
Global Goal 5: ‘Gender Equality’. To date regions, North America and Africa,
this programme has empowered Our people achieved less than one accident per 1,000
260,000 women. However, we have employees. With results like these, we
revised the target set in 2013 to We want our people to reach their full are confident that Zero Harm is no longer
empower 2 million women by 2016 potential, and to play their part in Diageo just an aspiration, but a very real and
because we realised that to achieve reaching its full potential as a business. achievable goal.
meaningful change we needed to focus We aim to create a diverse, inclusive, and During the coming year we will
on impact rather than simply reach. welcoming culture, where people are continue to focus on practical
proud of their work, empowered to succeed, programmes supported by behavioural
• Learning for Life – this supports
and know that their safety and other human change, in an effort to make Zero Harm Additional information for shareholders
vocational and life-skills training which
rights are respected. a reality across Diageo.
enable entrepreneurship, employability
and skills, in line with UN Global Goal 4:
‘Ensure inclusive and quality education Health and safety Diversity and inclusion
for all and promote lifelong learning’. Our global Zero Harm programme is We celebrate diversity and strive to create an
It also strengthens our value chain designed to ensure that all our people go inclusive culture that provides all individuals
through its emphasis on hospitality, home safe, every day – and our Health and the freedom to succeed, irrespective of their
retail, and entrepreneurship. Learning Safety strategy aims for a business in which gender, race, religion, disability, age or sexual
for Life currently operates over 90 no-one is hurt, anywhere. orientation.
initiatives a year in more than 40 To reach that end we have set ourselves With 47% of our Executive Committee
countries. Since we launched the increasingly challenging milestones, with our being women, we are proud of the progress
programme in 2008, more than 115,000 current target being less than one lost-time we have made in developing female
young people have taken part. accident (LTA) per 1,000 employees and leaders, but there is more to do. We are also
no fatalities.
committed to building local talent, with Lost-time accident

our general managers representing over frequency rate per 1,000
25 different nationalities. full-time employees(i) 2012 2013 2014 2015(ii) 2016
Our focus over the past year has been on North America 4.15 1.64 0.84 1.83 0.37
broadening and deepening our approach Europe, Russia and Turkey 2.41 2.12 2.08 2.51 1.28
to diversity and inclusion. Each market has Africa 1.82 2.55 0.56 1.20 0.77
developed a detailed multi-year plan to Latin America and Caribbean 1.44 10.88 4.7 0.66 2.27
achieve stretching goals, and their Asia Pacific 0.0 1.26 1.62 1.21 2.01
performance is regularly tracked and Diageo (total) 2.14 2.97 1.66 1.66 1.44Δ
benchmarked. Examples of market activities (i) Number of accidents per 1,000 employees and directly supervised contractors resulting in time lost from work
undertaken as a result include leadership of one calendar day or more.
(ii) 2015 data has not been restated to include USL, so this comparison does not include the additional improvements
sessions on unconscious bias in Europe, within USL that we have seen in 2016. For further detail and the reporting methodologies, see our Sustainability &
North America and India, a ‘Women in Responsibility Performance Addendum 2016.
Supply’ leadership programme delivered Δ Within PwC’s independent limited assurance scope.
to over 390 participants globally, and our
Number of days lost
commitment to ensuring that 50% of hires to to accidents per 1,000
our global graduate programme are women. full-time employees 2012 2013 2014 2015 2016
Diageo (total) 106.6 66.0 49.7 89.4 57
Our 2020 target
Build diversity, with 30% of leadership Fatalities 2012 2013 2014 2015 2016
positions held by women and measures Diageo (total) 1 4 1 1 1
implemented to help female employees
attain and develop in leadership roles. Average number of employees
by region by gender(i) Men Women Total
KPI: North America 1,729 1,166 2,895
% of leadership positions held by women. Europe, Russia and Turkey 6,555 4,197 10,752
This year, 28% of leadership roles were Africa 4,110 1,166 5,276
held by women. At the most senior level, Latin America and Caribbean 2,015 1,140 3,155
42% of our Board members and 47% Asia Pacific 8,178 1,822 10,000
of our Executive Committee members Diageo (total) 22,587 9,491 32,078
are women.
Average number of employees
by role by gender Men Women Total
Engaged and empowered employees Senior manager(ii) 493 193 686
Our people are at the heart of our business, Line manager(iii) 3,798 1,650 5,448
and we trust them to use their passion Supervised employee(iv) 18,296 7,648 25,944
for our brands and pride in what we do
Total 22,587 9,491 32,078
to deliver our performance.
We support our people through clear New hires by region by gender(i) % of regional
policies, competitive reward programmes, Men Women Total headcount
coaching and development opportunities, North America 175 130 305 10.5
and health and wellbeing initiatives. We aim Europe, Russia and Turkey 859 785 1,644 15.3
to engage and communicate with them Africa 352 203 555 10.5
through collaborative campaigns and Latin America and Caribbean 484 270 754 23.9
activities, such as #proudofwhatwedo (see Asia Pacific 548 317 865 8.6
case study on page 18), and to give them the Diageo (total) 2,418 1,705 4,123 12.9
freedom to succeed by fostering a culture of Percentage of total new hires 58.6 41.4
open communication in which best practice
is shared and there is a two-way channel to Leavers by region by gender(i) % of regional
Men Women Total headcount
and from our leadership.
North America 568 342 910 31.4
We want our people to be engaged:
Europe, Russia and Turkey 828 579 1,407 13.1
passionate about our strategy, connected
Africa 899 254 1,153 21.9
to our values, and motivated to be and
Latin America and Caribbean 646 374 1,020 32.3
perform at their best. The importance of
Asia Pacific 817 294 1,111 11.1
this to our business is reflected in the fact
that we measure employee engagement as Diageo (total) 3,758 1,843 5,601 17.5
one of our overarching KPIs, as set out on Percentage of total leavers 67.1 32.9
pages 8–9. Our annual Values Survey helps (i) Employees have been allocated to the region in which they reside.
(ii) Top leadership positions in Diageo, excluding Executive Committee.
us measure how we are engaging our (iii) All Diageo employees (non-senior managers), with one or more direct reports.
people and enabling them to perform. (iv) All Diageo employees (non-senior managers) who have no direct reports.
Sustainable agriculture
Our 2020 targets suppliers to share assessments and audits
Strategic report
Our new Sustainable Agriculture Strategy (due of ethical and responsible practices with
• Increase employee engagement to be launched in summer 2016) is designed
to 80%, becoming a top quartile multiple customers, and AIM-PROGRESS, a
to build on our long and mutually beneficial forum of over 40 leading consumer goods
performer on measures such as relationships with farmers and suppliers. Our
employee satisfaction, pride companies which promote responsible
vision is to make our agricultural supply chains sourcing practices and sustainable supply
and loyalty. environmentally, socially and economically chains. We also have an internal Know
• Raise our performance enablement sustainable. That means: Your Business Partner programme to
score, which measures a link between • Respecting human rights (including land assess third parties against the risk
engagement and performance rights), building capacity and creating of bribery and corruption.
commitment, to 83%. shared value with farming communities To date, 1,061 of Diageo’s supplier sites
• Using resources efficiently and assessed as a potential risk have
KPI: safeguarding future crops and ecosystems completed a SEDEX self-assessment
Employee satisfaction, loyalty, advocacy questionnaire. Of the 318 supplier sites
• Securing a supply for our business, while
and pride, measured through our assessed as a potential high risk, 47% (150)
contributing to economic and wider growth.
Values Survey. were independently audited during the
This year, 97% of our people
Our 2020 targets last three years. Of these, 70 were
Governance
participated in the Values Survey* (24,843 commissioned by Diageo and 80
out of the 25,712 able to participate), with • Establish partnerships with farmers
were accessed through SEDEX or
77% identified as engaged, and 80% to develop sustainable agricultural
AIM-PROGRESS.
feeling they were ‘enabled to perform’. supplies of key raw materials.
They confirmed that our core strengths
continue to be our pride and sense of KPI:
As part of our work on the Sustainable Global raw materials by volume 2016
ownership in our business, a passion for (Total – 1.4 million tonnes)
our brands, and belief in our strategy. Agriculture Strategy, we are in the process
Gratifyingly our survey scores continue of developing metrics to help us drive
to improve year on year and we are on our progress and measure our performance.
way to achieving our 2020 objective of By giving farmers the tools they need
reaching top quartile scores for the key to increase yields, we can help them
metrics of engagement and performance improve livelihoods and increase capacity.
enablement. We do this through a variety of
* In 2014, we reviewed our overall approach to programmes, including: training;
measuring engagement, and adopted a revised enhancing access to inputs that support
index. The new index allows us to compare our better yields, such as seeds and fertiliser;
results with other best-in-class organisations, and
sets us a more stretching benchmark for employee providing access to capital through micro-
engagement. loans; supporting farmers’ groups; and Barley1 43% Grapes 6%
Maize2 13% Agave 3%
encouraging sustainable practices that Wheat 9% Rice 1%
protect natural resources. Molasses 9% Dairy 1%
Sustainable supply chains Sorghum 6% Rye 1%
• Source 80% of our agricultural raw Sugar 6% Other 2%
(including raisins, cassava,
Our direct suppliers – around 28,000 from materials locally in Africa by 2020. hops and aniseed)
more than 100 countries – who provide us
KPI: Global packaging materials3 by volume 2016
with raw materials, expertise, and other
% agricultural raw materials sourced (Total – 1.3 million tonnes)
resources are essential to our business. We
locally in Africa.
believe that we create value in return, by
We sourced 73% of agricultural
supporting and building capability among
materials locally within Africa for use by
our supplier communities and by
our African markets, compared to 70% in
strengthening environmental practices,
2015. We are on track, and believe that our
alongside the economic value from trade.
work building farmer capacity in Africa, Additional information for shareholders
As a minimum, we’re committed to
combined with our long history of
responsible sourcing, which complies with
engagement in the region, will help us
legal and regulatory requirements, including
continue to make progress.
those related to human rights and working
conditions. With sustainable sourcing, we’re • Deliver our responsible sourcing
going beyond compliance to tackle risks commitments with suppliers to Glass 83% Cans 1%
and maximise opportunities for us and Corrugate 8% Bags 1%
improve labour standards and Cartons 2% Labels and sleeves 1%
the people throughout our supply chain, human rights in our supply chains. PET 1% Crowns 1%
contributing to reducing poverty and Closures 1% Beverage cartons 1%
inequality, addressing environmental KPI: 1
Includes malted barley.
challenges, increasing wellbeing, and % of potential high risk supplier 2
Excludes maize used to make the neutral spirit we
improving livelihoods in line with the UN sites audited. purchase in North America to ensure our figures
represent only raw materials we buy directly; maize
Global Goals. We continued to work through SEDEX, therefore represents 13% of raw materials by volume
a not-for-profit organisation that enables this year, compared with 22% in 2015.
3
Excludes promotional materials.
Performance against 2020 targets

REDUCING OUR Cumulative
ENVIRONMENTAL 2020 target KPI
2016
performance
performance
vs baseline(i)
IMPACT Reduce water use through a 50% % improvement in litres of water
improvement in water use efficiency used per litre of packaged product 12.5% 37.7%
Return 100% of wastewater % reduction in wastewater
We aim to be a business which uses natural from our operations to the polluting power, measured
resources efficiently, reduces our impact on environment safely in BOD (‘000 tonnes) 37.7% 38.6%
climate change, causes no lasting damage to Replenish the amount of water
habitats or biodiversity and, where possible, used in our final product in water- % of water replenished in
improves the environment we operate in. stressed areas water-stressed locations 21.0% 21.0%
We are committed to minimising our Reduce absolute GHG emissions % reduction in absolute GHG
environmental impact across all our from direct operations by 50% (kt CO2e) 7.7% 36.2%
operations, and we have continued to Achieve a 30% reduction in absolute
GHG emissions along the total % reduction in absolute GHG
extend our environmental programmes
supply chain (kt CO2e) 4.0% 18.2%
into the broader supply chain. This will help
% of total packaging by weight 0.8% 8.0%
ensure the sustainability and security of our Reduce total packaging by 15%,
supply chain, supporting the resilience and while increasing recycled content to % of recycled content by weight 1.0% 40.0%
45% and making 100% of packaging % of recyclable packaging
growth of our business. recyclable by weight 0.1% 98.7%
% reduction in total waste
Action on climate change Achieve zero waste to landfill to landfill (tonnes) 41.4% 90.1%
This year saw an unprecedented (i) Baseline year is 2007, except for packaging which is 2009 and water replenishment which is 2015.
international focus on climate action, with
the COP21 conference in December resulting
in the Paris Agreement on climate change.
particularly in relation to emerging markets. • Return 100% of wastewater from our
We have long advocated the reduction of
The strategy incorporates our global supply operations to the environment safely.
carbon emissions by business in response to
chain, which will enable better understanding
climate change. As members of the We
and management of our total impact KPI:
Mean Business Coalition, we committed to
on water. % reduction of wastewater polluting
carbon emissions reduction targets,
eliminating commodity-driven deforestation, power measured in 1,000t BOD.
A year of progress in all areas We reduced the polluting power
and providing climate change information in
This year we have made progress against of the wastewater we returned to the
corporate filings. We are also committed to
all our 2020 environmental targets while environment by 37.7% this year.
procuring 100% of our electricity from
broadening our scope and ambition. New This year’s performance was driven
renewable sources by 2030 and reducing
acquisitions have been fully integrated into predominantly by maintaining excellent
emissions from short-lived climate pollutants.
the business, including United National progress at our breweries in Africa and
During COP21, we confirmed our
Breweries (UNB) in South Africa and Don India, and reducing production (and
membership of the Business Alliance for
Julio in Mexico, and are included in our consequently wastewater volume) from
Water and Climate Change.
independent environmental auditing and our Cameronbridge distillery in Scotland.
associated limited assurance statement.
Focus on water
Water remains one of our most material • Equip our suppliers with tools to
environmental issues: as a drinks company, Our 2020 targets protect water resources in our most
water is an essential resource, and its careful Water stewardship water-stressed locations.
management is a business priority. • Reduce water use through a 50%
improvement in water use efficiency. KPI:
Water is also a shared resource, with
% of key suppliers engaged in water
complex interdependencies between
KPI: management practices.
different users, which means that its use,
% improvement in litres of water used Since joining the CDP’s Water
especially in water-stressed areas, can have
per litre of packaged product. Programme last year, we have made
impacts on communities and the wider
This year our water efficiency improved progress in developing ways to qualitatively
environment. The map on page 15 shows the
by 12.5% compared with 2015 and by evaluate our suppliers’ use of water in future
number of our sites located in water-stressed
37.7% compared with our baseline. years and to encourage and support
areas. These account for approximately a third
In our operations, this was driven by suppliers to protect water resources.
of our total production by volume. Our
improvements in East Africa, where our We engaged around 40 of our
strategic aim is to reduce our overall impact,
Tusker Brewery in Nairobi improved water largest suppliers to disclose their water
especially in water-stressed areas such as
efficiency by 27%, and in Canada, where management practices through this
Africa, India and Brazil which this year saw
our Gimli distillery improved by 35%. programme. Of the 62% of suppliers
severe droughts. During the year we
26,682 cubic metres of water were that responded, 79% reported having a
developed specific local strategies to address
used for agricultural purposes on land reduction target in place. In the coming
water stewardship in East Africa and India.
under Diageo’s operational control. This is year we will scale up this programme
Our Water Blueprint, launched in April
reported separately from water used in to over 100 of our key suppliers and
2015, outlines how we will protect and
our direct operations. third-party operators.
manage our water resources globally,
• Replenish the amount of water used in Water efficiency by region,
Strategic report
by year (l/l)(i), (ii) 2007 2014 2015 2016
our final product in water-stressed areas.
North America 6.79 5.41 5.35 5.20
KPI: Europe, Russia and Turkey 7.89 7.02 6.73 5.78
% of water replenished in Africa 8.48 5.60 5.14 4.53
water-stressed locations. Latin America and Caribbean 34.66 31.20 6.26 4.58
This year, 21% of total water used in Asia Pacific 7.09 7.10 5.68 4.98
final product in water-stressed areas was Diageo (total) 8.21 6.75 5.84 5.11Δ
replenished.
This new target commits us to Wastewater polluting power by region,
replenishing approximately 1,000,000 cubic by year (BOD/t)(i) 2007 2014 2015 2016
metres of water by 2020, or 200,000 cubic North America 242 15 13 101

metres each year. In the first year, we have Europe, Russia and Turkey 22,927 35,851 31,543 19,494
replenished 215,000 cubic metres through Africa 9,970 2,727 670 460
reforestation, desilting of dams, water Latin America and Caribbean 11 22 50 48
storage, and safe water and sanitation Asia Pacific 92 489 489 298
projects. The majority of these projects are Corporate 0 0 0 0
Governance
near our sites located in acutely water- Diageo (total) 33,242 39,104 32,765 20,401
stressed areas in India and East Africa. Total under direct control 32,412 38,867 32,535 20,123Δ
In addition, the volume of water (i) 2007 baseline data and data for each of the intervening years in the period ended 30 June 2015 have been restated
recycled or reused in our own production in accordance with Diageo’s environmental reporting methodologies.
(ii) In accordance with Diageo’s environmental reporting methodologies, total water used excludes irrigation
was 1,797,985 cubic metres, representing water for agricultural purposes on land under the operational control of the company.
8.4% of total water withdrawals. Δ Within PwC’s independent limited assurance scope.
Our 2020 targets 2015. The divestment of the wines business • Ensure all our new refrigeration
Carbon and acquisition of UNB are the principal equipment in trade is HFC-free,
• Reduce absolute GHG emissions from drivers of this year-on-year change. In the with a reduction in associated
direct operations by 50%. United Kingdom, 99.5% of our electricity GHG emissions from 2015.
came from low-carbon sources.
KPI: KPI:
% reduction in absolute GHG (kt CO2e). • Achieve a 30% reduction in absolute % of equipment sourced HFC-free
GHG emissions along the total
We use the World Resources Institute/ from 1 July 2015.
World Business Council for Sustainable supply chain. This year, 99% of the more than 17,000
Development Greenhouse Gas Protocol as fridges we purchased were sourced as
KPI: HFC-free equipment.
a basis for reporting our emissions, and we
% reduction in absolute GHG (kt CO2e).
include all facilities over which we have
This new target underpins our
operational control for the full fiscal year.
commitment to reduce carbon emissions,
We reduced GHG emissions in our direct
including collaborating with our suppliers,
operations this year by 7.7% through a range Direct and indirect carbon emissions
distributors and customers to reduce
of measures and initiatives, including a by weight (1,000 tonnes CO2e)1,2,Δ
emissions along the total supply chain. This
reduction in coal use in India, energy (market-/net-based)
year, we established the total supply chain
improvements at our US Virgin Islands
carbon footprint of our 2007 baseline year 878
business, and the transition to hydro-
as 4.09 million tonnes. In 2016, our total 739
powered grid electricity in Cameroon. 658
supply chain carbon footprint was 3.34 595
Diageo’s total direct and indirect
million tonnes, a reduction of 18.2% versus
carbon emissions (location/gross) were
the baseline and a 4% reduction since 2015.
845,000 tonnes (direct emissions (scope 1)
The key drivers are lower emission factors 190 Additional information for shareholders
656,000 tonnes and indirect emissions 84 86
attributed to fertiliser use and consequently 80
(scope 2) 189,000 tonnes). In 2015, total
agricultural raw materials; reduced 2007 2014 2015 2016
direct and indirect carbon emissions
emissions from our packaging materials;
(location/gross) were 903,000 tonnes Direct
and the reduced carbon footprint of our
(direct emissions 710,000 and indirect Indirect
direct operations.
emissions 193,000 tonnes). The intensity
In our supply chain we engaged 145 1
CO2e figures are calculated using the WRI/WBCSD GHG
ratio this year was 203 grams per litre Protocol guidance available at the beginning of our
key suppliers on measuring and managing financial year, the kWh/CO2e conversion factor
packaged, compared to 227 grams per
their carbon emissions through the CDP. provided by energy suppliers, the relevant factors to
litre in 2015. the country of operation, or the International Energy
Of the 85% that responded to the CDP Agency, as applicable.
This year, approximately 52.1% of
questionnaire, 48% reported having an 2
2007 baseline data, and data for each of the
electricity at our production sites came intervening years in the period ended 30 June 2015,
emissions reduction target in place.
from low-carbon sources such as wind, have been restated in accordance with the WRI/
WBCSD GHG Protocol and Diageo’s environmental
hydro and nuclear, compared to 57.6% in reporting methodologies.
∆ Within PwC’s independent limited assurance scope.
Carbon emissions by weight by region

(1,000 tonnes CO2e)(i), (ii) 2007 2014 2015 2016 GOVERNANCE AND
North America 214 55 53 45 ETHICS
Europe, Russia and Turkey 406 355 329 285
Africa 271 235 248 250
Latin America and Caribbean 7 15 15 15
In a volatile political and commercial
Asia Pacific 151 152 81 73 environment, governance and ethics grow
Corporate 19 11 12 13 ever more important. People want to trust
Diageo (total) 1,068 823 738 681Δ the company behind the brands they love.
(i) CO2e figures (market/net) are calculated using the WRI/WBCSD GHG Protocol guidance available at the beginning
The global risk and compliance team
of our financial year, the kWh/CO2e conversion factor provided by energy suppliers, the relevant factors to the provide rigorous oversight of our risk
country of operation, or the International Energy Agency, as applicable. management, controls and compliance and
(ii) 2007 baseline data, and data for each of the intervening years in the period ended 30 June 2015, have been
restated in accordance with the WRI/WBCSD GHG Protocol and Diageo’s environmental reporting methodologies. ethics programme. As our business grows,
Δ Within PwC‘s independent limited assurance scope. so does our investment in improving our
productivity and performance through
Our 2020 targets • Sustainably source all of our paper increasing levels of automation and more
and board packaging to ensure zero efficient and effective systems and
Packaging processes.
• Reduce total packaging by 15%, while net deforestation.
increasing recycled content to 45% and Communications and compliance
KPI:
making 100% of packaging recyclable. training
% sustainably sourced paper and board
KPI: packaging.
KPI:
% of total packaging by weight. We define sustainably sourced as
Number of eligible employees
Forest Stewardship Council (FSC) or
KPI: completing the Annual Certification
Programme for the Endorsement of Forest
% of recycled content by weight. of Compliance (ACC).
Certification (PEFC) certified, or recycled
KPI: fibre. This year we established a strategic T his year, 100% of manager level and
% of recyclable packaging by weight. process for managing and reporting the above employees completed the ACC.
This year we achieved a 0.8% reduction volume of sustainably sourced paper We have placed a renewed emphasis on
in packaging weight vs 2015 (8.0% vs 2009 and board packaging. To date we have building compliance capability across the
baseline); a 1.0% increase in recycled engaged close to 100 suppliers to business and are working hard to engage
content vs 2015 (40% vs 2009 baseline); establish a baseline, and are embedding our employees.
and increased packaging recyclability our sustainable sourcing criteria in how We launched our refreshed Code of
by 0.1% vs 2015 (98.7% vs 2009 baseline). we work with our suppliers. Business Conduct (our Code) to every
Our Sustainable Packaging employee in every market in July 2015,
Commitments are used by brands and and we have continued to engage our
technical teams as well as suppliers and
Our 2020 target employees through impactful
support our on-going programme to communications.
produce packaging with the lowest Waste
• Achieve zero waste to landfill. Each market has its own training plan for
environmental impact. They were our Code and key policies which they deliver
refreshed in 2016 to, among other things, through locally organised, risk-based training.
introduce new guidance to support a KPI:
% reduction in total waste to landfill We have strengthened our communication
circular economy approach. on good practice through annual market
(tonnes).
We achieved a 41.4% reduction in waste engagement events like the Pathway of Pride
to landfill compared to last year. A key driver programme in Africa, Ethics Day in Asia
was achieving approval for new ways to use Pacific and Compliance Awareness Day
organic waste from our Turkish operations, in Latin America.
particularly reusing by-products from We require all new employees to
wastewater treatment facilities and using complete our Code training within 30 days of
aniseed residues as fertiliser. joining the business. We regularly review our
training and communications material – and
Total waste to landfill by region methods for delivery – to ensure they remain
(tonnes)(i) 2007 2014 2015 2016 relevant to the risks our employees face in
North America 40,154 174 123 148 their roles.
Europe, Russia and Turkey 22,464 6,525 7,207 2,974 Our ACC certifies that each employee at
Africa 37,062 12,699 7,507 6,080 manager level and above fully understands
Latin America and Caribbean 246 285 218 155 what is expected of them. In 2016, the
Asia Pacific 8,583 13,766 2,984 703 ACC was completed by all 9,668 eligible
Corporate 591 687 687 894 managers.
Diageo (total) 109,100 34,136 18,726 10,954Δ
(i) 2007 baseline data and data for each of the intervening years in the period ended 30 June 2014 have been restated
in accordance with Diageo’s environmental reporting methodologies.
Δ Within PwC‘s independent limited assurance scope.
USL, which updated its Code of Business Monitoring, auditing and reporting
Strategic report
Conduct and Ethics in 2015, rolled out its We aim to create a culture in which
first ACC to all eligible managers – 2,540 employees feel comfortable raising concerns
of USL employees, or approximately 44% about potential breaches of our Code or
of all employees (of which 3,238 work in a policies. We expect anyone who comes
non-office environment with no access to across a breach to report it immediately,
computers or email). either through our confidential
whistleblowing helpline SpeakUp, to their
Risk management manager, or to a member of the global risk
Following the launch of the new risk and compliance, human resources or legal
management global standard in 2015, we teams. SpeakUp is also available to our
continue to evolve our risk management business partners.
programme. This year we standardised There were 752 suspected breaches
our scenario planning methodologies and reported this year, of which 340 were
Governance and ethics
risk management training, and made it subsequently substantiated. Of the
mandatory for a wider group within the suspected breaches, 311 were reported Helping our people make the
business, in order to address the increased through SpeakUp, compared with 386 in right choices: global compliance
Governance
risk of volatility. Our global standard requires 2015.1 All allegations are taken seriously and awareness events
all markets and functions to perform risk those that require action are investigated.
assessments at least annually and to consider Our response to proven breaches varies We’re constantly looking for ways to
risks concerning human rights, bribery and depending on the severity of the matter, strengthen our culture of integrity to help
corruption, anti-money laundering and all and we monitor breaches to identify trends our people make the right choices. Since
other relevant laws and regulation. or common areas where further action may we refreshed our Code of Business Conduct
be required. This year, 94 people exited the (our Code) in July 2015, we’ve been seeking
Controls and automation business as a result of breaches of our Code new opportunities to engage employees
The principles of our strong control or policies, compared with 131 in 2015.1 around the world through communications
programme remain unchanged and this year Our overall case volumes have fallen and training.
we worked on automating many of our by 10% since last year and the number Control, compliance and ethics (CCE)
managers in each market and function
manual control processes as part of our Next of employees exiting our business as a
define and deliver their own local risk-based
Generation Controls programme. Changes result of breaches has fallen by 28%. We
training plan for our Code and key policies
are carefully managed to ensure our control believe this is a positive indication that relevant to their business. To support our
environment and assurance programme are our compliance programme is maturing. CCE managers and their teams, we run a
robust, but also delivered in an efficient and Our employees better understand what series of global capability events to stretch
effective manner. constitutes a breach and what doesn’t, both the functional skills and the leadership
and our training and enforcement impact of this network. These events include
Due diligence is having an impact. the Compliance Awareness Day, held this
Continuing to ensure that we do not expose year in four countries in our WestLAC
ourselves to additional compliance risk from 1
2015 numbers restated to include USL. market, our Pathway of Pride programme
third-party business partners remains a across Africa, and our Ethics Day in
priority. This year we introduced a globally Asia Pacific.
automated system that carries out real-time During these events, employees attend
Reported and substantiated breaches training sessions on policies including
sanctions due diligence, checking third
Human Rights, Employee Alcohol, Corporate
parties for bribery and corruption risks.
835
Security and Crisis Management, as well as
752 training tailored to employees’ individual
roles and locations. The training is
386 supported by role-play scenarios, video
340 diaries and question-and-answer sessions
131 94 with senior leaders, and plenary sessions
using real-life examples and case studies on Additional information for shareholders
2015 2016 policies relevant to all employees.
Feedback has been hugely positive, and
Reported 1
these events have become an important
Substantiated
Code-related leavers part of our effort to sustain our culture of
integrity in Diageo, every day, everywhere.
1
Reported through SpeakUp – 311; 2015 – 386.
50 DIAGEO Annual Report 2016 Definitions and reconciliations of non-GAAP measures to GAAP measures
DEFINITIONS AND Diageo’s strategic planning process is based on the

RECONCILIATIONS following non-GAAP measures. They are chosen for
OF NON-GAAP planning and reporting, and some of them are used for
incentive purposes. The group’s management believes
MEASURES TO these measures provide valuable additional information
GAAP MEASURES 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.
Volume calculated by dividing operating profit respect of acquisitions that, in management’s
Volume is a non-GAAP measure that is before exceptional items by net sales after judgement, are expected to complete.
measured on an equivalent units basis to excluding the impact of exchange rate Where a business, brand, brand
nine-litre cases of spirits. An equivalent unit movements and acquisitions and disposals. distribution right or agency agreement was
represents one nine-litre case of spirits, disposed of, or terminated, in the period
which is approximately 272 servings. A (a) Exchange rates up to the date of the external results
serving comprises 33ml of spirits, 165ml of 'Exchange' in the organic movement announcement, the group, in the organic
wine, or 330ml of ready to drink or beer. calculation reflects the adjustment to movement calculations, excludes the results
Therefore, to convert volume of products recalculate the prior year results as if they for that business from the current and prior
other than spirits to equivalent units, the had been generated at the current year’s year. In the calculation of operating profit,
following guide has been used: beer in exchange rates. the overheads included in disposals are only
hectolitres, divide by 0.9; wine in nine-litre Exchange impacts in respect of the those directly attributable to the businesses
cases, divide by five; ready to drink in external hedging of intergroup sales of disposed of, and do not result from
nine-litre cases, divide by 10; and certain products and the intergroup recharging subjective judgements of management. In
pre-mixed products that are classified as of third party services are allocated to the addition, disposals include the elimination of
ready to drink in nine-litre cases, divide geographical segment to which they relate. the results (for volume, sales, net sales and
by five. Residual exchange impacts are reported marketing only) of operations in India where
in Corporate. United Spirits Limited (USL) previously fully
Organic movements Exchange impacts in respect of profit consolidated the results but which are now
In the discussion of the performance of the on intergroup sales of products and operated on a royalty or franchise model
business, 'organic' information is presented intergroup recharges are reported in where USL now receives royalties only for
using pounds sterling amounts on a ‘other operating expenses’. sales made by that operation.
constant currency basis excluding the
impact of exceptional items and acquisitions (b) Acquisitions and disposals (c) Exceptional items
and disposals. Organic measures enable For acquisitions in the current year, the post Exceptional items are those which, in
users to focus on the performance of the acquisition results are excluded from the management’s judgement, need to be
business which is common to both years and organic movement calculations. For disclosed by virtue of their size or nature.
which represents those measures that local acquisitions in the prior year, post acquisition Such items are included within the income
managers are most directly able to influence. results are included in full in the prior year statement caption to which they relate, and
but are included in the organic movement are separately disclosed in the notes to the
Calculation of organic movements
calculation from the anniversary of the consolidated financial statements, and are
The organic movement percentage is the
acquisition date in the current year. The excluded from the organic movement
amount in the row titled ‘Organic
acquisition row also eliminates the impact of calculations.
movement’ in the tables below, expressed as
transaction costs that have been charged to Organic movement calculations for the
a percentage of the amount in the row titled
operating profit in the current or prior year in year ended 30 June 2016 were as follows:
‘2015 adjusted’. Organic operating margin is
Europe, Russia Latin America

North America and Turkey Africa and Caribbean Asia Pacific Corporate Total
million million million million million million million
Volume (equivalent units)
2015 reported 47.3 44.1 26.2 21.6 107.0 – 246.2
Disposals(iii) (1.3) (2.3) (0.2) (1.3) (3.3) – (8.4)
2015 adjusted 46.0 41.8 26.0 20.3 103.7 – 237.8
Acquisitions and disposals(iii) 0.5 1.3 3.0 0.7 – – 5.5
Organic movement 0.5 0.8 2.3 (0.4) (0.1) – 3.1
2016 reported 47.0 43.9 31.3 20.6 103.6 – 246.4
Organic movement % 1 2 9 (2) – n/a 1
Definitions and reconciliations of non-GAAP measures to GAAP measures DIAGEO Annual Report 2016 51
North Europe, Russia Latin America
Strategic report
America and Turkey Africa and Caribbean Asia Pacific Corporate Total
£ million £ million £ million £ million £ million £ million £ million
Sales
2015 reported 3,909 4,683 1,868 1,297 4,129 80 15,966
Exchange(i) 199 (181) (143) (181) (54) – (360)
Disposals(iii) (283) (247) (31) (119) (48) (48) (776)
2015 adjusted 3,825 4,255 1,694 997 4,027 32 14,830
Acquisitions and disposals(iii) 117 124 89 76 8 – 414
Organic movement 95 214 92 5 (13) 4 397
2016 reported 4,037 4,593 1,875 1,078 4,022 36 15,641
Organic movement % 2 5 5 1 – 13 3
Net sales
2015 reported 3,455 2,617 1,415 1,033 2,213 80 10,813
Exchange(i) 172 (87) (102) (134) (21) – (172)
Disposals(iii) (272) (184) (18) (98) (35) (48) (655)
Governance
2015 adjusted 3,355 2,346 1,295 801 2,157 32 9,986
Acquisitions and disposals(iii) 113 96 72 57 7 – 345
Organic movement 97 102 34 5 34 4 276
Reclassification(ii) – – – – (122) – (122)
2016 reported 3,565 2,544 1,401 863 2,076 36 10,485
Organic movement % 3 4 3 1 2 13 3
Marketing
2015 reported 542 388 147 194 344 14 1,629
Exchange(i) 23 1 (11) (26) – – (13)
Disposals(iii) (22) (7) – (11) (1) (2) (43)
2015 adjusted 543 382 136 157 343 12 1,573
Acquisitions and disposals(iii) 8 2 6 10 – – 26
Organic movement (10) 20 1 – (42) (6) (37)
2016 reported 541 404 143 167 301 6 1,562
Organic movement % (2) 5 1 – (12) (50) (2)
Operating profit before exceptional items
2015 reported 1,448 804 318 263 356 (123) 3,066
Exchange(i) 77 (24) (67) (57) (5) (7) (83)
Acquisitions and disposals(iii) (55) (34) (5) (17) (1) (2) (114)
2015 adjusted 1,470 746 246 189 350 (132) 2,869
Acquisitions and disposals(iii) 25 10 (7) 12 1 (1) 40
Organic movement 56 45 (27) (2) 44 (17) 99
2016 reported 1,551 801 212 199 395 (150) 3,008
Organic movement % 4 6 (11) (1) 13 (13) 3
Organic operating margin %

2016 44.2% 32.3% 16.5% 23.2% 18.0% n/a 28.9%
2015 43.8% 31.8% 19.0% 23.6% 16.2% n/a 28.7%
Margin improvement/(decline) (bps) 39 51 (252) (39) 176 n/a 19
(1) For the reconciliation of sales to net sales and operating profit before exceptional items to operating profit see page 25 and page 103. Additional information for shareholders
(2) Percentages and margin improvement/(decline) are calculated on rounded figures.
Notes: Information in respect of the organic movement calculations

(i) The exchange adjustments for sales, net sales, marketing and operating profit are principally in respect of the Nigerian naira, the South African rand, the Venezuelan bolivar, the
Brazilian real and the Turkish lira, partially offset by the US dollar.
(ii) Following a review of the third party production arrangements in India it was determined to be more appropriate to ensure consistent reporting by reclassifying the excise
duties payable by the third party production companies as excise duties. This change was implemented by USL in its first three months of its financial year ended 30 June 2016,
and resulted in net sales for the year ended 30 June 2016 reducing by £122 million with a corresponding decrease in cost of sales. There was no impact on gross or
operating profit.
(iii) In the year ended 30 June 2016 the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows:
Operating
Volume Sales Net sales Marketing profit
equ. units million £ million £ million £ million £ million
Year ended 30 June 2015
Acquisitions
Integration costs – – – – 7
– – – – 7
Disposals
North America Wines and Percy Fox (2.2) (386) (343) (18) (58)
Grand Marnier (0.2) (26) (20) – (2)
Bouvet (0.1) (16) (16) (1) (2)
Argentina (0.6) (38) (33) (3) (4)
South Africa (0.2) (27) (15) – (3)
Jamaica and Red Stripe (1.1) (133) (107) (11) (23)
Bushmills (0.7) (65) (50) (8) (23)
USL owned to franchise (3.2) (29) (17) – –
Gleneagles – (48) (48) (2) (4)
Other (0.1) (8) (6) – (2)
(8.4) (776) (655) (43) (121)
Acquisitions and disposals (8.4) (776) (655) (43) (114)

Year ended 30 June 2016
Acquisitions
Don Julio 0.3 34 22 6 23
United National Breweries 2.6 44 44 1 4
South Africa 0.3 35 23 5 (11)
Argentina – 1 1 – –
Transaction costs – – – – (1)
3.2 114 90 12 15
Disposals
North America Wines and Percy Fox 1.1 181 161 8 12
Grand Marnier 0.3 28 22 – 3
Bouvet – 7 7 – 1
Argentina 0.3 19 16 2 –
South Africa 0.1 9 4 – (1)
Jamaica and Red Stripe 0.5 52 41 4 7
Bushmills – 3 2 – 1
Other – 1 2 – 2
2.3 300 255 14 25
Acquisitions and disposals 5.5 414 345 26 40

Earnings per share before exceptional items
Strategic report
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 years ended 30 June 2016 and 30 June 2015 are set out in the table below.
2016 2015
£ million £ million
Profit attributable to equity shareholders of the parent company 2,244 2,381
Exceptional operating items attributable to equity shareholders of the parent company 171 268
Non-operating items attributable to equity shareholders of the parent company (115) (373)
Tax in respect of exceptional operating and non-operating items attributable to equity shareholders of the parent company (58) (51)
2,242 2,225
Weighted average number of shares

Shares in issue excluding own shares (million) 2,508 2,505
Dilutive potential ordinary shares (million) 10 12
Governance
2,518 2,517
Basic earnings per share before exceptional items (pence) 89.4 88.8
Diluted earnings per share before exceptional items (pence) 89.0 88.4
Free cash flow

Free cash flow comprises the net cash flow from operating activities aggregated with the net cash received/paid for loans receivable and
other investments and the net cash cost 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.
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
acquisitions and sales of businesses are discretionary.
Where appropriate, separate explanations are given for the impacts of acquisitions 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 years ended 30 June 2016 and 30 June 2015 are set out in the table below:
2016 2015
Net cash from operating activities 2,548 2,551
Disposal of property, plant and equipment and computer software 57 52
Purchase of property, plant and equipment and computer software (506) (638)
Movements in loans and other investments (2) (2)
Free cash flow 2,097 1,963

Operating cash conversion

Operating cash conversion is calculated by dividing cash generated from operations excluding cash inflows/outflows in respect of exceptional
items, dividends received from associates, maturing inventories, 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 ratio is stated at the budgeted exchange rate for the respective year in line with management reporting and is expressed as a
percentage.
Operating cash conversion for the years ended 30 June 2016 and 30 June 2015 were as follows:
2016 2015
Exceptional operating items 167 269
Depreciation and amortisation(i) 355 371
Retranslation to budgeted exchange rates 18 146
3,381 3,583
Cash generated from operations 3,360 3,456
Cash payments in respect of exceptional items 80 221
Post employment payments less amounts included in operating profit(i) 58 67
Net movement in maturing inventories 144 247
Dividends received from associates (173) (183)
Other items(i) 15 (21)
Retranslation to budgeted exchange rates 75 148
3,559 3,935
Operating cash conversion 105.3% 109.8%
(i) excluding exceptional items.
Return on average total invested capital

Return on average total 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 total invested capital reflects operating profit before exceptional items attributable to
the 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 year. Average total 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 post employment benefit net 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 total invested capital for the years ended 30 June 2016 and 30 June 2015 are set out in the table below.
2016 2015
Exceptional operating items 167 269
Profit before exceptional operating items attributable to non-controlling interests (108) (87)
Share of after tax results of associates and joint ventures 221 175
Tax at the tax rate before exceptional items of 19.0% (2015 – 18.3%) (593) (577)
2,528 2,577
Average net assets (excluding net post employment liabilities) 10,202 8,910
Average non-controlling interest (1,558) (1,240)
Average net borrowings 9,130 9,682
Average integration and restructuring costs (net of tax) 1,639 1,604
Goodwill at 1 July 2004 1,562 1,562
Adjustment in respect of acquisition of USL(i) – 493
Average total invested capital 20,975 21,011
Return on average total invested capital 12.1% 12.3%
(i) For the year ended 30 June 2015 average net assets were adjusted for the inclusion of USL as though it was owned throughout the year as it became a subsidiary on 2 July 2014.
Tax rate before exceptional items
Strategic report
Tax rate before exceptional items is calculated by dividing the total tax charge on continuing operations before tax charges and credits,
classified as or 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 continuing
operations before tax on exceptional items.
The tax rates from operations before exceptional and after exceptional items for the year ended 30 June 2015 and 30 June 2016 are set out
in the table below.
2016 2015
Tax before exceptional items (a) 552 517
Tax in respect of exceptional items (56) (51)
Taxation on profit from operations (b) 496 466
Profit from operations before taxation and exceptional items (c) 2,902 2,829
Non-operating items 123 373
Exceptional operating items (167) (269)
Profit before taxation (d) 2,858 2,933
Governance
Tax rate before exceptional items (a/c) 19.0% 18.3%
Tax rate after exceptional items (b/d) 17.4% 15.9%
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.
Price/mix is the number of percentage points by which the organic movement in net sales differs to 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.
Depletion is the estimated volume of the first onward sales from our direct customers, measured on an equivalent units basis.
References to emerging markets include Russia, Eastern Europe, Turkey, Africa, Latin America and Caribbean, and Asia Pacific (excluding
Australia, Korea and Japan).
References to reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old,
Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route,
Johnnie Walker The Royal Route and other Johnnie Walker super premium brands; The Singleton, Cardhu, Talisker, Lagavulin and other malt
brands; Buchanan’s Special Reserve, Buchanan’s Red Seal; Bulleit Bourbon, Bulleit Rye; Tanqueray No. TEN, Tanqueray Malacca Gin; Cîroc, Ketel
One vodka; Don Julio, Zacapa, Bundaberg SDlx, Shui Jing Fang, Jinzu gin, Haig Club whisky, Orphan Barrel whiskey and DeLeón Tequila.
References to global giants include the following brand families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and
Guinness. Local stars spirits include, but are not limited to, Bell’s, Buchanan’s, Bundaberg, Bulleit, Cacique, Crown Royal, Don Julio, JεB,
McDowell’s, Old Parr, Yenì Raki, Ketel One vodka, scotch malts, White Horse, Windsor and Ypióca. Global giants and local stars exclude ready
to drink.
References to ready to drink also include ready to serve products, such as pre-mix cans in some markets, and progressive adult beverages
in the United States and certain markets supplied by the United States.
References to beer include non-alcoholic products such as Malta Guinness.
References to the group include Diageo plc and its consolidated subsidiaries.
This Strategic Report was approved

by a duly appointed and authorised
committee of the Board of Directors on
27 July 2016 and signed on its behalf by
David Harlock, Company Secretary.
56 DIAGEO Annual Report 2016 Board of Directors and Company Secretary
BOARD OF DIRECTORS
AND COMPANY SECRETARY
Dr Franz B Humer (70) Current external appointments: Partner and Chairman, Karmarama; Deputy Chairman, Grey London; Board
Chairman, Non-Executive Corsair Capital LLC; Chairman, Jack Wills; Chair of Trustees, Director, BBH and Fragrance Foundation; President,
Director 3* Royal Academy of Arts; Vice Chairman, LetterOne Institute of Practitioners in Advertising; Board Member,
Nationality: Swiss/Austrian Holdings S.A. CEW; Trustee, White Ribbon Alliance; Chair of the
Previous relevant experience: Chairman, Chime Corporate Board, Women’s Aid
Appointed Chairman July 2008
Communications PLC; Minister for Trade, Investment and
(Appointed Non-Executive
Director April 2005). He will retire
Small Business for the UK Government; Group Chief Philip G Scott (62)
Executive, Standard Chartered PLC Non-Executive Director 1*,3,4
from the Diageo Board on 1 January 2017
Current external appointments: Member, LetterOne Nationality: British
Health Investment Advisory Board; Non-Executive Peggy B Bruzelius (66) Appointed Non-Executive
Director, Chugai Pharmaceutical Co. Ltd, CitiGroup Inc., Non-Executive Director 1,3,4 Director and Chairman of the
Emil Frey SA and Kite Pharma Inc.; Adviser, Tamasek Nationality: Swedish Audit Committee October 2007
Holdings (Private) Limited and WISeKey SA Appointed Non-Executive Previous relevant experience:
Previous relevant experience: Chairman, INSEAD Board Director April 2009 Non-Executive Director, Royal Bank of Scotland Group plc;
of Directors; Chairman, F. Hoffman-La Roche Ltd; Chief Current external President, Institute and Faculty of Actuaries; Chief
Operating Director, Glaxo Holdings plc appointments: Chairman, Financial Officer, Aviva plc
Lancelot Asset Management; Non-Executive Director,
Javier Ferrán (59) Akzo Nobel NV, Lundin Petroleum AB and Skandia Liv AB Alan JH Stewart (56)
Chairman Designate, Previous relevant experience: Non-Executive Director, Non-Executive Director 1,3,4
Non-Executive Director 1,3,4 Axfood AB, Husgvarna; Syngenta AG, Scania AB; Nationality: British
Nationality: Spanish Managing Director, ABB Financial Services AB; Vice
Appointed Non-Executive
Chairman, Electrolux AB; Executive Vice President,
Appointed Chairman Designate, Director September 2014
Skandinaviska Enskilda Banken AB
Non-Executive Director July 2016 Current external
Current external appointments: Chief Financial
appointments: Partner, Lion Capital LLP; Non-Executive Ho KwonPing (63) Officer, Tesco plc; Member of the Advisory Board,
Director, Associated British Foods plc, Coca-Cola Non-Executive Director 1,3,4 Chartered Institute of Management Accountants;
European Partners, Desigual; Member, Advisory Board Nationality: Singaporean Member of the Main Committee & Chairman of Pension
of Agrolimen, ESADE Business School Appointed Non-Executive Committee, the 100 Group of Finance Directors
Previous relevant experience: President and CEO, Director October 2012 Previous relevant experience: Chief Financial Officer,
Bacardi Limited; Non-Executive Director, SAB Miller plc Current external Marks & Spencer and AWAS; Non-Executive Director,
appointments: Executive Games Workshop plc; Group Finance Director, WH Smith
Ivan Menezes (57) Chairman and Founder, Banyan Tree Holdings Limited; plc; Chief Executive, Thomas Cook UK
Chief Executive, Executive Chairman, Laguna Resorts & Hotels Public Company
Director 2* Limited, Thai Wah Public Company Limited and Emma Walmsley (46)
Nationality: American/British Singapore Management University; Governor, London Non-Executive Director 1,3,4
Business School; Chairman of School Advisory Nationality: British
Appointed Chief Executive July
Committee, School of Hotel and Tourism Management
2013 (Appointed Executive Appointed Non-Executive
of the Hong Kong Polytechnic University
Director July 2012) Director January 2016
Previous relevant experience: Member, Global Advisory
Current external appointments: Member of the Council, Current external
Board of Moelis & Company; Chairman, MediaCorp Pte.
Scotch Whisky Association; Non-Executive Director, appointments: Chief Executive
Ltd, Non-Executive Director, Singapore Airlines Limited,
Coach Inc; Member of the Global Advisory Board, Kellogg Officer and Director, GSK Consumer Healthcare
Standard Chartered PLC and Singapore Power Limited
School of Management, Northwestern University Holdings Limited
Previous Diageo roles: Chief Operating Officer; Previous relevant experience: President,
President, North America; Chairman, Diageo Asia Pacific; Betsy D Holden (60) GlaxoSmithKline Consumer Healthcare; Senior marketing
Chairman, Diageo Latin America and Caribbean; senior Non-Executive Director 1,3,4 and general manager roles, L’Oreal
management positions, Guinness and then Diageo Nationality: American
Previous relevant experience: marketing and strategy Appointed Non-Executive David Harlock (55)
roles, Nestlé, Booz Allen Hamilton Inc. and Whirlpool Director September 2009 Company Secretary and
Current external General Counsel Corporate
Kathryn Mikells (50) appointments: Senior Advisor, Centre
Executive Director 2 McKinsey & Company; Non-Executive Director Time Inc Nationality: British
Nationality: American and Western Union Company; Member of the Board of
Appointed Company Secretary
Trustees, Duke University; Member of the Executive
Appointed Executive Director and General Counsel Corporate
Committee, Kellogg School of Management Global
November 2015 Centre July 2016
Advisory Board
Current external Previous Diageo roles: General Counsel Corporate,
Previous relevant experience: Non-Executive Director,
appointments: Non-Executive Africa, Russia, Turkey; General Counsel Africa, Turkey,
Catamaran Corporation, Tribune Company and
Director, The Hartford Financial Services Group, Inc. Russia & Eastern Europe; General Counsel M&A and
MediaBank LLC; President, Global Marketing and
Previous relevant experience: Corporate Executive Vice Global Functions; Regional Counsel International;
Category Development and Co-Chief Executive Officer,
President and Chief Financial Officer, Xerox Corporation; Counsel International
Kraft Foods, Inc; Member of the North American Advisory
Senior Vice President and Chief Financial Officer, ADT Previous relevant experience: Hogan Lovells
Board, Schneider Electric
Corporation; Executive Vice President and Chief Financial
Officer, Nalco Holding Company and UAL Corporation Laurence M Danon ceased to be a Non-Executive
Nicola S Mendelsohn (44) Director on 23 September 2015
Non-Executive Director 1,3,4
Lord Davies of Abersoch (63) Paul D Tunnacliffe ceased to be Company Secretary on
Nationality: British
Senior Non-Executive Director 30 June 2016
1,3,4* Appointed Non-Executive
Nationality: British Director September 2014 Key to committees
Current external 1. Audit
Appointed Senior Non-
appointments: Vice president, 2. Executive (comprising senior management)
Executive Director and
Facebook EMEA; Director, Women’s Prize for Fiction; 3. Nomination
Chairman of the Remuneration
Co-Chair, Creative Industries Council 4. Remuneration
Committee October 2011 (Appointed Non-Executive
Previous relevant experience: Executive Chairman, *Chairman of committee
Director September 2010)
Executive Committee DIAGEO Annual Report 2016 57
EXECUTIVE
Strategic report
COMMITTEE
David Cutter (48) Anand Kripalu (57) Mairéad Nayager (41)
President, Global Supply and CEO, United Spirits Limited Human Resources Director
Procurement Nationality: Indian Nationality: Irish
Nationality: Australian Appointed CEO, United Spirits Appointed Human Resources
Appointed President, Global Limited September 2014 Director October 2015
Supply and Procurement July Previous Diageo roles: Previous Diageo roles: HR
2014 CEO-designate, United Director, Diageo Europe; HR
Previous Diageo roles: Supply Director, International Spirits Limited Director, Brandhouse, South Africa; HR Director, Diageo
Supply Centre; President, Supply Americas; Supply Previous relevant experience: Various management Africa Regional Markets; Talent & Organisational
Director, Asia Pacific roles at Mondelēz International, Cadbury and Unilever Effectiveness Director, Diageo Africa; Employee Relations
Previous relevant experience: leadership roles, Frito-Lay Current external appointments: Non-Executive Manager, Diageo Ireland
and SC Johnson Director, Marico Previous relevant experience: Irish Business and
Current external appointments: Member of the Council, Employers’ Confederation (IBEC)
Scotch Whisky Association Charlotte Lambkin (44)
John O’Keeffe (44)
Governance
Corporate Relations Director
Sam Fischer (48) Nationality: British President, Diageo Africa
President, Diageo Greater China Nationality: Irish
Appointed Corporate Relations
and Asia Director January 2014 Appointed President Africa
Nationality: Australian Previous relevant experience: July 2015
Appointed President, Greater Group Communications Previous Diageo roles: CEO and
China and Asia September 2014 Director, BAE Systems; Director, Bell Pottinger Corporate Managing Director, Guinness
Previous Diageo roles: & Financial Nigeria; Global Head of Innovation and Beer and Baileys;
Managing Director, Diageo Greater China; Managing Managing Director Russia and Eastern Europe; various
Director of South East Asia, Diageo Asia Pacific; General management and marketing positions, Diageo
Deirdre Mahlan (54)
Manager, Diageo IndoChina and Vietnam President, Diageo North
Previous relevant experience: Senior management roles America Syl Saller (59)
across Central Europe and Indochina, Colgate Palmolive Nationality: American Chief Marketing Officer
Nationality: American/British
Appointed President, Diageo
Brian Franz (51) North America December 2015 Appointed Chief Marketing
Chief Productivity Officer Current external appointments: Officer July 2013
Nationality: American/British Non-Executive Director, Experian plc Previous Diageo roles: Global
Appointed Chief Productivity Previous Diageo roles: Chief Financial Officer and Innovation Director; Marketing
Officer August 2015 Executive Director; Deputy Chief Financial Officer; Head Director, Diageo Great Britain
Previous Diageo roles: CIO and of Tax and Treasury Previous relevant experience: brand management and
Head of GDBS, IS Services Previous relevant experience: Member, Main marketing roles, Allied Domecq PLC, Gillette Company
Previous relevant experience: Senior Vice President and Committee of the 100 Group of Finance Directors; senior and Holson Burnes Group, Inc; Non-Executive Director,
CIO, PepsiCo International; Commercial CIO, various CIO finance positions, Joseph E. Seagram & Sons, Inc.; Senior Dominos Pizza Group plc
and management roles, General Electric manager, PricewaterhouseCoopers
Nick Blazquez, formerly President, Diageo Africa and
Alberto Gavazzi (50) Anna Manz (43) Asia Pacific, ceased to be an Executive Committee
President, Diageo Latin Group Strategy Director member on 30 June 2016.
America and Caribbean Nationality: British
Nationality: Brazilian/Italian Larry Schwartz, formerly President, Diageo North
Appointed Group Strategy
America, ceased to be an Executive Committee member
Appointed President, Latin Director July 2013. She will
on 31 December 2015.
America and Caribbean be leaving Diageo on
July 2013 30 September 2016
Leanne Wood, formerly Human Resources Director,
Previous Diageo roles: Managing Director, West Latin Current external appointments: Non-Executive
ceased to be an Executive Committee member on
America and Caribbean; Global Category Director Director, ITV PLC
5 October 2015.
Whiskey, Gins and Reserve Brands; General Manager Previous Diageo roles: Regional Finance Director,
Brazil, Paraguay and Uruguay; Vice President Consumer Diageo Asia Pacific; Group Treasurer; Finance Director,
Marketing, Chicago; Marketing Director, Brazil Global Marketing, Sales and Innovation; Finance Director
Previous relevant experience: Colgate Palmolive; Ireland; Vice President Finance, Diageo North America
Unilever PLC Previous relevant experience: Unilever PLC and ICI PLC
John Kennedy (51) Siobhan Moriarty (54)

President, Diageo Europe, General Counsel
Russia and Turkey Nationality: Irish
Nationality: American Appointed General Counsel
Appointed President, Diageo July 2013
Europe, Russia and Turkey Previous Diageo roles: General
July 2015 Counsel Designate; Corporate
Previous Diageo roles: President, Europe and Western M&A Counsel; Regional Counsel Ireland; General
Europe; Chief Operating Officer, Western Europe; Counsel Europe
Marketing Director, Australia; General Manager for Previous relevant experience: various positions in law
Innovation, North America; President and Chief firm private practice, Dublin and London
Executive Officer, Diageo Canada; Managing Director,
Diageo Ireland
Previous relevant experience: brand management
roles, GlaxoSmithKline and Quaker Oats
58 DIAGEO Annual Report 2016 Corporate governance report
CORPORATE
GOVERNANCE
REPORT
Letter from the Chairman of the Board of Directors and the Company Secretary
Dear Shareholder
On behalf of the Board, we are pleased to present the corporate governance report for the year ended 30 June 2016.
Boards of Directors are ultimately responsible for the corporate governance of their companies, that is to say, the way in which companies
are directed and controlled. The responsibilities of the Board include: setting the company’s strategic aims and its values; providing the
leadership to put them into effect; supervising and constructively challenging management who are responsible for the day to day
operational running of the business; and reporting to shareholders on their stewardship. We continue to believe that Diageo’s Board has the
appropriate diversity and balance of skills, experience, independence and knowledge of the company to enable it to discharge these
responsibilities effectively. The description in this report of Diageo’s corporate governance structures and procedures and of the work of the
Board, its committees and the Executive Committee is intended to give a sense of how this is carried out.
The principal corporate governance rules applying to Diageo (as a UK company listed on the London Stock Exchange (LSE)) for the year
ended 30 June 2016 are contained in The UK Corporate Governance Code as updated and published by the Financial Reporting Council (FRC)
in September 2014 (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.
Throughout the year, Diageo has complied with all relevant provisions set out in the Code (with the exception that two directors
were unable to attend the 2015 AGM), which is publicly available under the heading ‘Corporate Governance’ at the website of the FRC,
www.frc.org.uk.
Diageo must also comply with corporate governance rules contained in the FCA Disclosure Guidance and Transparency Rules as well as
certain related provisions in the Companies Act 2006 (the Act).
As well as being subject to UK legislation and practice, as a company listed on the New York Stock Exchange (NYSE), Diageo is subject to
the listing requirements of the NYSE and the rules of the Securities and Exchange Commission (SEC). Compliance with the provisions of the
US Sarbanes-Oxley Act of 2002 (SOX), as it applies to foreign private issuers, is continually monitored. As Diageo follows UK corporate
governance practice, differences from the NYSE corporate governance standards are summarised in Diageo’s 20-F filing and on our website
at www.diageo.com/en-row/ourbusiness/aboutus/corporategovernance.
Dr Franz B Humer David Harlock

Chairman Company Secretary
Corporate governance report DIAGEO Annual Report 2016 59
BOARD OF DIRECTORS In addition, Executive Committee members and other senior
Strategic report
executives are invited, as appropriate, to Board and strategy meetings
to make presentations on their areas of responsibility.
All Directors are also provided with the opportunity, and
Membership of the Board and Board Committees
encouraged, to attend regular training to ensure they are kept up to
The Chairmen, Senior Non-Executive Director and other members
date on relevant legal developments or changes and best practice
of the Board, Audit Committee, Nomination Committee and
and changing commercial and other risks.
Remuneration Committee are as set out in this Annual Report in the
biographies of Directors and members of the Executive Committee. Performance evaluation
There is a clear separation of the roles of the Chairman and the During the year an evaluation of the Board’s effectiveness, including
Chief Executive. The Chairman, Dr Franz B Humer, is responsible for the effectiveness of the Audit Committee, the Nomination
the running of the Board and for ensuring all Directors are fully Committee and the Remuneration Committee was undertaken
informed of matters, sufficient to make informed judgements. As internally by way of written questionnaire followed by the Chairman
Chief Executive, Ivan Menezes has responsibility for implementing of the Board meeting individually with all Directors.
the strategy agreed by the Board and for managing the company A report was prepared and presented, with the conclusion that
and the group. He is supported in this role by the Executive the Board and its Committees continued to operate effectively,
Committee. meeting the requirements and spirit of the Code. The climate within
The Non-Executive Directors, all of whom the Board has
Governance
the Board, its capability and the diversity of Board members, were
determined are independent, are experienced and influential again seen as significant factors which contributed to the Board’s
individuals from a range of industries, backgrounds and countries. effectiveness during the year.
No individual or group dominates the Board’s decision-making There were, nevertheless, areas identified as being of a particular
processes. focus: executive engagement, aimed at building the relationship
On 19 May 2016, it was announced that Javier Ferrán would between the Board and the executive team; understanding
be appointed to the Board on 22 July 2016 and would succeed consumer insights and trends and the competitive performance;
Dr Humer as Chairman on 1 January 2017. and investor relations, including the communication strategy and
execution. A further objective was succession to the Board, in
A summary of the terms and conditions of appointment of the Non-
Executive Directors is available at www.diageo.com/en-row/ourbusiness/ particular finding a successor to the Chairman, which has been
aboutus/corporategovernance. successfully executed, as highlighted above, with the appointment
of Javier Ferrán to the Board.
Activities and duties of the Board In conclusion, and without being complacent, the Board was
The Board manages overall control of the company’s affairs with considered to be in good shape to deal with the areas identified as
reference to the formal schedule of matters reserved for the Board for being of particular focus and to support management in its
decision. The schedule was last reviewed in July 2015 and is available aspirations to deliver the Performance Ambition.
at www.diageo.com/en-row/ourbusiness/aboutus/ A similar, internal, exercise building on this evaluation and
corporategovernance. covering the evaluation of the Board and its Committees will start in
The Board has agreed an approach and adopted guidelines for the subsequent financial year. A report will be prepared for the Board
dealing with conflicts of interest and responsibility for authorising to consider. The results of the evaluation will be reported in next
conflicts of interest is included in the schedule of matters reserved for year’s report.
the Board. The Board confirmed that it was aware of no situations The Chairman has confirmed that the Non-Executive Directors
that may or did give rise to conflicts with the interests of the standing for re-election at this year’s AGM continue to perform
company other than those that may arise from Directors’ other effectively, both individually and collectively as a Board, and that each
appointments as disclosed in their biographies. demonstrate commitment to their roles. The senior Non-Executive
In order to fulfil their duties, procedures are in place for Directors Director led a performance evaluation of the Chairman. Feedback
to seek both independent advice and the advice and services of the was discussed in a meeting with the Executive and Non-Executive
Company Secretary who is responsible for advising the Board, Directors and then privately with the Chairman.
through the Chairman, on all governance matters. The Non-Executive It is the Board’s intention to continue to review annually its
Directors meet without the Chairman present, and also meet with performance and that of its committees and individual directors. It is
the Chairman without management present, on a regular basis. anticipated that the evaluation in 2017 will be externally facilitated
and the results reported in a subsequent Annual Report.
The terms of reference of Board Committees are available at
www.diageo.com/en-row/ourbusiness/aboutus/corporategovernance. Nomination Committee
Role of the Nomination Committee
Induction, training and business engagement The Nomination Committee is responsible for keeping under review
There is a formal induction programme for new Directors, which was the composition of the Board and succession to it, and succession
followed during the year for Emma Walmsley. This included meeting planning for senior leadership positions. It makes recommendations
with Executive Committee members and other senior executives to the Board concerning appointments to the Board.
individually and visiting a number of operations and sites around Any new Directors are appointed by the Board and, in accordance
the group. with the company’s articles of association, they must be elected at
Following the initial induction for Non-Executive Directors, a the next AGM to continue in office. All existing Directors retire by
continuing understanding of the business is developed through rotation every year.
appropriate business engagements. Visits to customers,
engagements with employees, and brand events were arranged
during the year.
Activities of the Nomination Committee To support the market visits made by the presidents in the ordinary
The principal activities of the Nomination Committee during the year course of their business, a small group led by the Chief Executive
were: the consideration of potential new Non-Executive Directors, in makes regular market visits focused on the execution of strategy and
light of the review of the structure and composition of the Board and, designed to assist in continuing the development of strategy and in
in particular, the focus on finding a successor to the Chairman; the the delivery of performance against the Performance Ambition.
review of individual Director performance; a review of the Executive
Committee membership and succession planning for it and for Committees appointed by the Chief Executive and intended to have an
senior leadership positions, in addition to a review of diversity within ongoing remit, including the Audit & Risk Committee, Finance Committee
and Filings Assurance Committee are shown (with their remits) at
the group.
www.diageo.com/en-row/ourbusiness/aboutus/corporategovernance.
In respect of the appointment of Emma Walmsley the recruitment
process included the development of a candidate profile and the Additional information
engagement of MWM Consulting, a professional search agency Internal control and risk management
(which has no other connection with the Company) specialising in An ongoing process has been established for identifying, evaluating
the recruitment of high calibre Non-Executive Directors. Reports on and managing risks faced by the group. This process, which complies
potential appointees were provided to the committee, which, after with the requirements of the Code, has been in place for the full
careful consideration, made a recommendation to the Board. financial year and up to the date the financial statements were
A similar but more focused search was undertaken for a successor approved and accords with the guidance issued by the Financial
to the Chairman, with an alternative professional search agency Reporting Council in September 2014, Guidance on Risk
(JCA Group) used (again with no other connection with the management, Internal Control and related Financial and Business
Company). This search resulted in the Nomination Committee Reporting. The Board confirms that, through the activities of the
meeting on a number of separate occasions before making a Audit Committee described below, a robust assessment of the
recommendation to the Board that Javier Ferrán be appointed principal risks facing the company, including those that would
as the designated successor to the Chairman. threaten its business model, future performance, solvency or liquidity
Diversity has been carried out. These risks and mitigations are set out above
Diageo supports diversity within its Board of Directors, including in the section of this Annual Report dealing with principal risks.
gender diversity. Further information is given in the section of this The Board acknowledges that it is responsible for the company’s
Annual Report on sustainability and responsibility, our people. systems of internal control and risk management and for reviewing
their effectiveness. The Board confirms that, through the activities
Remuneration Committee of the Audit Committee described below, it has reviewed the
Role of the Remuneration Committee effectiveness of the company’s systems of internal control and
The role of the Remuneration Committee and details of how the risk management.
company applies the principles of the Code in respect of Directors’ During the year, in line with the Code, the Board considered the
remuneration are set out in the Directors’ remuneration report. nature and extent of the risks it was willing to take to achieve its
The Chairman and the Chief Executive may, by invitation, attend strategic goals and reviewed the existing internal statement of risk
Remuneration Committee meetings, except when their own appetite (which was considered and recommended to the Board
remuneration is discussed. No Director is involved in determining by both the Audit & Risk Committee and the Audit Committee).
his or her own remuneration. In accordance with the Code, the Board has also considered the
company’s longer term viability, based on a robust assessment of
EXECUTIVE DIRECTION its principal risks. This was done through the work of the Audit
Committee which recommended the Viability Statement (as set
AND CONTROL out above) to the Board.
The company has in place internal control and risk management
systems in relation to the company’s financial reporting process and
Executive Committee
the group’s process for preparation of consolidated accounts. Further,
The Executive Committee, appointed and chaired by the Chief
a review of the consolidated financial statements is completed by
Executive, supports him in discharging his responsibility for
management to ensure that the financial position and results of the
implementing the strategy agreed by the Board and for managing
group are appropriately reflected therein.
the company and the group.
It consists of the individuals responsible for the key components Compliance and ethics programme
of the business: North America, Europe, Africa, Latin America and Diageo is committed to conducting its business responsibly and in
Caribbean, Asia Pacific, International Supply Centre and Corporate accordance with all laws and regulations to which its business
and other. activities are subject. We hold ourselves to the principles in our Code
The Executive Committee focuses its time and agenda to align of Business Conduct, which is embedded through a comprehensive
with the Performance Ambition and how to achieve Diageo’s training and education programme for all employees.
financial and non-financial performance objectives. Performance
metrics have been developed to measure progress and a further Our Code of Business Conduct, an updated version of which was launched
designated focus is on the company’s reputation. In support, monthly during the financial year, and other Diageo global policies are available at
performance delivery calls, involving the senior leadership group, www.diageo.com/en-row/ourbusiness/aboutus/corporategovernance.
focus on progress against the six performance drivers.
Corporate governance report DIAGEO Annual Report 2016 61
In accordance with the requirements of SOX (and related SEC rules), Going concern
Strategic report
Diageo has adopted a code of ethics covering its Chief Executive, The Directors confirm that, after making appropriate enquiries, they
Chief Financial Officer, presidents and other identifiable persons in have reasonable expectation that the group has adequate resources
the group, including those performing senior accounting and to continue in operational existence. Accordingly, they continue to
controller functions. No amendments to, or waivers in respect of, adopt the going concern basis in preparing the financial statements.
the code of ethics were made during the year. Further information on going concern is given in this Annual Report
under note 1 Accounting information and policies – going concern.
The full text of the code of ethics is available at www.diageo.com/en-row/ Although not assessed over the same period as the going concern,
ourbusiness/aboutus/corporategovernance. the viability of the group has been assessed above.
Both the Audit & Risk Committee and the Audit Committee regularly Management’s report on internal control over financial reporting
review the strategy and operation of the compliance and ethics Management, under the supervision of the Chief Executive and Chief
programme through the year. Financial Officer, is responsible for establishing and maintaining
Further information is given in the section of this Annual Report adequate control over the group’s financial reporting.
on sustainability and responsibility, governance and ethics. Management has assessed the effectiveness of Diageo’s internal
control over financial reporting (as defined in Rules 13(a)-13(f) and
Relations with shareholders 15(d)-15(f) under the US Securities Exchange Act of 1934) based on
The Board’s primary contact with institutional shareholders is through
Governance
the framework in ‘Internal Control – Integrated Framework’, issued
the Chief Executive and Chief Financial Officer. The Chief Executive by the Committee of Sponsoring Organisations of the Treadway
and Chief Financial Officer are supported by the investor relations Commission (COSO) in 2013. Based on this assessment, management
department, who are in regular contact with institutional concluded that, as at 30 June 2016, internal control over financial
shareholders and sell-side analysts. A monthly investor relations reporting was effective.
report, including coverage of the company by sell-side analysts, is During the period covered by this report, there were no changes
circulated to the Board. in internal control over financial reporting that have materially
The Board also ensures that all Directors develop an affected or are reasonably likely to materially affect the effectiveness
understanding of the views of major institutional shareholders of internal control over financial reporting.
through an independent survey of shareholder opinion. In addition, PricewaterhouseCoopers LLP (PwC), an independent registered
major shareholders are invited to raise any company matters of public accounting firm, who also audit the group’s consolidated
interest to them at meetings with the chairman of the Board and the financial statements, has audited the effectiveness of the group’s
chairman of the remuneration committee. Reports on any meetings internal control over financial reporting, and has issued an unqualified
are made to the Board. report thereon, which is included in PwC’s integrated audit report
Private shareholders are invited to write to the chairman or any below and which will be included in the company’s Form 20-F to be
other Director and express their views on any issues of concern at any filed with the SEC.
time and the AGM provides an opportunity for private shareholders
to put their questions in person. Directors’ responsibilities in respect of the Annual Report
and financial statements
Political donations The Directors are responsible for preparing the Annual Report, the
During the year, Diageo Great Britain Limited (a wholly owned information filed with the SEC on Form 20-F and the group and
subsidiary of the Company) helped, with others, defray the costs of parent company financial statements in accordance with applicable
an economists’ dialogue (and associated report) hosted by the law and regulations.
independent Centre for European Reform think-tank, in the EU
referendum context. These costs totalled £2,500 (2015: nil). During the Responsibility statement
year also, Diageo Germany GmbH (a wholly owned subsidiary of the Each of the Directors, whose names are set out in the Board of
Company) helped, with others, to support a dialogue between key Directors and Executive Committee section of this Annual Report,
German media and influencers called ‘CDU Media Night’ hosted by confirms that to the best of his or her knowledge:
the political party CDU. These costs totalled approximately £1,000 • the Annual Report and Accounts for the year ended 30 June 2016,
(2015: nil). Otherwise, the group has not given any money for political taken as a whole, is fair, balanced and understandable, and
purposes in the United Kingdom and made no donations to EU provides the information necessary for shareholders to assess the
political organisations and incurred no EU political expenditure group’s position and performance, business model and strategy;
during the year. • the consolidated financial statements contained in the Annual Additional information for shareholders
The group made contributions to non-EU political parties totalling Report and Accounts for the year ended 30 June 2016, which have
£0.4 million during the year (2015: £0.5 million). These contributions been prepared in accordance with IFRS as issued by the IASB and
were made exclusively to federal and state candidates and as adopted for use in the EU, give a true and fair view of the assets,
committees in North America (consistent with applicable laws), liabilities, financial position and profit of the group; and
where it is common practice to make political contributions. No
• the management report represented by the Directors’ Report
particular political persuasion was supported and contributions were
contained in the Annual Report and Accounts for the year ended
made with the aim of promoting a better understanding of the
30 June 2016 includes a fair review of the development and
group and its views on commercial matters, as well as a generally
performance of the business and the position of the group,
improved business environment.
together with a description of the principal risks and uncertainties
that the group faces.
The responsibility statement was approved by the Board of Directors

on 27 July 2016.
Directors’ attendance record at the AGM, scheduled Board meetings and Board committee meetings, for the year ended 30 June 2016 was as
set out in the table below. 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 Audit Nomination Remuneration

General Meeting Board Committee Committee Committee
2015 (maximum 6)(iii) (maximum 4) (maximum 7)(iv) (maximum 4)
Dr Franz B Humer ü 6/6 4/4(i) 3/3 4/4(i)
Ivan Menezes ü 6/6 2/2(ii) 3/3(i) 4/4(ii)
Deirdre Mahlan ü 3/3 1/1 (i)
n/a n/a
Kathryn Mikells n/a 3/3 3/3(i) n/a n/a
Lord Davies ü 6/6 4/4 7/7 4/4
Peggy Bruzelius ü 6/6 4/4 6/7 4/4
Laurence Danon û 1/2 1/1 1/2 1/1
Betsy Holden ü 6/6 4/4 7/7 4/4
Ho KwonPing ü 6/6 3/4 5/7 4/4
Nicola Mendelsohn û 5/6 4/4 5/7 4/4
Philip Scott ü 6/6 4/4 7/7 4/4
Alan Stewart ü 6/6 4/4 7/7 4/4
Emma Walmsley n/a 2/2 2/2 3/3 2/2
(i) Attended by invitation.
(ii) Attended by invitation, for part only.
(iii) Where Non-Executive Directors were unable to attend a meeting they gave their views to the Chairmen of the respective meetings ahead of the meetings being held.
Nicola Mendelsohn and Laurence Danon were unable to attend the 2015 AGM as a result of, respectively, a religious holiday and a prior engagement.
A Sub-Committee meeting of the Audit Committee was also held involving P G Scott and P B Bruzelius.
(iv) Four meetings of the Nomination Committee were held on Chairman succession.
Report of the Audit Committee DIAGEO Annual Report 2016 63
REPORT OF THE
Strategic report
AUDIT COMMITTEE
Letter from the Chairman of the Audit Committee
Governance
Dear Shareholder
On behalf of the Audit Committee, I am pleased to present its report for the year ended 30 June 2016.
The purpose of this report is to describe how the Committee has carried out its responsibilities during the year.
In overview, the role of the Audit Committee is to monitor and review: the integrity of the company’s financial statements; internal
control and risk management; audit and risk programmes; business conduct and ethics; ‘whistleblowing’; and the appointment of the
external auditor.
The work of the Committee during the year included various matters referred to in last year’s report. The Committee oversaw
compliance with both the updated version of the UK Corporate Governance Code (Code) (notably the requirements for a Viability
Statement and increased disclosure on risk) and the Financial Reporting Council’s new ‘Guidance on Risk management, Internal Control
and related Financial and Business Reporting’ (which replaced the ‘Turnbull’ and other guidance). In addition the Committee oversaw the
transition to the new auditors, PricewaterhouseCoopers LLP (PwC).
With regard to the outcome of the UK referendum, to leave the European Union, the Committee will monitor the situation, with a
view to ensuring that any resulting risks to the Company are properly managed.
In discharging its duties, the Audit Committee seeks to balance independent oversight of the matters within its remit with providing
support and guidance to management. I remain confident that the Committee, supported by members of senior management and the
external auditors, has carried out its duties in the year under review, effectively and to a high standard.
Philip G Scott
Chairman of the Audit Committee

64 DIAGEO Annual Report 2016 Report of the Audit Committee
REPORT OF THE • Assumptions used in respect of post employment plans. Having

considered advice from external actuaries and assumptions used
AUDIT COMMITTEE by companies with comparator plans, the committee agreed that
the assumptions used to calculate the income statement and
balance sheet assets and liabilities for post employment plans
Role of the Audit Committee were appropriate (see note 13).
The formal role of the Audit Committee is set out in its terms of • Viability Statement. The committee noted that severe but
reference, which are available at www.diageo.com/en-row/ plausible risk scenarios had been identified; a robust risk
ourbusiness/aboutus/corporategovernance. Key elements of the assessment had been carried out; and the group’s viability and
role of the committee and work carried out during the year are set going concern consideration proved with stress testing. Taking
out as follows. into account the company’s balance sheet position, the
committee expected the group to be able to meet its liabilities as
Financial statements they fell due over the three-year period ending 30 June 2019. The
During the year, the Audit Committee met four times (and a risk that the group would become insolvent during this timeframe
sub-committee met once) and reviewed the annual reports and was considered remote. The Committee recommended to the
associated preliminary year end results announcement, focusing on Board that the Viability statement above be approved.
key areas of judgement and complexity, critical accounting policies,
provisioning and any changes required in these areas or policies. As part of its review of the Annual Report, the committee considered
In addition, the Audit Committee reviewed the interim results whether the report is ‘fair, balanced and understandable’ (noting the
announcement, which included the interim financial statements Code’s new reference to ‘position’ as well as ‘performance, business
and oversaw the transition to the new auditors, PwC. model and strategy’. On the basis of this work, the Audit Committee
The company has in place internal control and risk management recommended to the Board that it could make the required
systems in relation to the company’s financial reporting process statement that the Annual Report is ‘fair, balanced and
and the group’s process for preparation of consolidated accounts. understandable’.
A review of the consolidated financial statements is completed by
management (through the work of its filings assurance committee Internal control and risk management; audit and risk programme;
(FAC)) to ensure that the financial position and results of the group business conduct and ethics (including ‘whistleblowing’)
are appropriately reflected therein. The Audit Committee reviewed At each of its meetings, the Audit Committee reviewed detailed
the work of the FAC and a report on the conclusions of the FAC reports from the heads of the Global Risk & Compliance (GRC) and
process was provided to the Audit Committee by the Chief Global Audit & Risk (GAR) teams (including coverage of the areas
Financial Officer. mentioned in the title of this section) and had sight of the minutes of
Significant issues and judgements that were considered in respect meetings of management’s Audit & Risk Committee. A key focus for
of the 2016 financial statements were as follows. These include the the work of both GRC and GAR during the year and their reporting
matters relating to risks disclosed in the UK external auditor’s report. to the committee, continued to be a review of recent acquisitions.
• Disclosure on the quality of the earnings and one off items The Committee in turn were thus able to keep under review the
included in cash flow. The committee agreed that sufficient development of the controls and compliance framework in acquired
disclosure was made in the financial statements. companies. The Committee also received regular updates from the
• The committee determined that exceptional items are group general counsel on significant litigation and from the head
appropriately classified considering their size and nature, and of tax on the group’s tax profile and key issues.
sufficient disclosure is provided in the financial statements The GRC reporting included a consideration of key risks and
(see note 4). related mitigations, including those set out in the section of this
Annual Report dealing with principal risks. Based on this activity
• Review of carrying value of assets – in particular intangible assets. during the year, the Audit Committee made a recommendation to
The committee agreed that an impairment charge of £118 million the Board covering the nature and extent of the risks it was willing
(excluding tax) be made against the Ypióca brand and related to take to achieve its strategic goals and its internal statement of risk
fixed assets and goodwill allocated to the Paraguay, Uruguay appetite (this was considered also by the Audit & Risk Committee).
and Brazil cash-generating unit but that, otherwise, the fair value The Board agreed this recommendation.
of the company’s assets was in excess of their carrying value Through the activities of the Audit Committee described in this
(see notes 6 and 10). report and its related recommendations to the Board, the Board
• Exchange rate used to translate operations in Venezuela. The confirms that it has reviewed the effectiveness of the company’s
committee determined an appropriate rate used for the year systems of internal control and risk management and that there were
ended 30 June 2016 for consolidation purposes, that represents no material failings identified and no significant failings identified
the best estimation of the rate at which capital and dividend which require disclosure in this Annual Report.
repatriations are expected to be realised (see note 1).
External auditor
• Disclosure on taxation. The committee agreed that the separate
During the year, the Audit Committee reviewed the external audit
presentation of the tax risk and the expansion of the tax note
strategy and the findings of the external auditor from its review of
disclosure appropriately addresses the significant change in the
the interim results and its audit of the consolidated financial
international tax environment giving sufficient and transparent
statements.
information for the users (see page 21 and note 7).
The Audit Committee reviews annually the appointment of the
• Review of legal cases. The committee agreed that adequate auditor (taking into account the auditor’s effectiveness and
provision has been made for all material litigation and disputes, independence and all appropriate guidelines) and makes a
based on the currently most likely outcomes, including the recommendation to the Board accordingly. Any decision to open the
litigation summarised in note 18. external audit to tender is taken on the recommendation of the Audit
Report of the Audit Committee DIAGEO Annual Report 2016 65
Committee. There are no contractual obligations that restrict the
Strategic report
company’s current choice of external 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 financial year ended
30 June 2016.
The Audit Committee assesses the ongoing effectiveness and
quality of the external auditor and audit process on the basis of
meetings and a questionnaire-based internal review with the finance
team and other senior executives. Given that the year under review
was PwC’s first in office (following a tender last year), the assessment
will be carried out later in 2016.
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 2016. The review took into
consideration the new regulations on non-audit services. Under this
Governance
policy, the provision of any non-audit service must be approved by
the Audit Committee, unless the proposed service is both expected
to cost less than £250,000 and also falls within one of a number of
service categories which the Audit Committee has pre-approved.
Fees paid to the auditor for audit, audit related and other services are
analysed in the notes to the consolidated financial statements. The
nature and level of all services provided by the external auditor is a
factor taken into account by the Audit Committee when it reviews
annually the independence of the external auditor.
‘Financial expert’ and other attendees

For the purposes of the Code and the relevant rule under SOX,
section 407, the Board has determined that Philip Scott is
independent and may be regarded as an Audit Committee
financial expert.
The Chairman, the Chief Financial Officer, the group general
counsel the group financial controller, the head of GAR, the GRC
director, the group chief accountant and the external auditor
regularly attend meetings of the committee.
The Audit Committee met privately with the external auditor
and with the head of global audit and risk as appropriate.
Training and deep dives

During the year, the Audit Committee had a risk review and training
session, presented by senior executives, on data protection. In
addition, as part of a Board meeting, Committee members had
a presentation from senior management on the priorities and
challenges of the Europe and GB businesses. The Committee
concluded at the time that it was satisfied with the Company’s
position on these matters but that they would be kept under review.

66 DIAGEO Annual Report 2016 Directors’ remuneration report
DIRECTORS’
REMUNERATION
REPORT
Annual statement by the Chairman of the Remuneration Committee
Dear Shareholder
As Chairman of the Remuneration Committee, I am pleased to present the Directors’ remuneration report for the year ended 30 June 2016.
This report complies with the UK Directors’ Remuneration Reporting Regulations 2013 and contains:
• The Directors’ remuneration policy, as approved by shareholders at the AGM in September 2014.
• The annual report on remuneration, describing how the remuneration policy has been put into practice during the year ended 30 June 2016.
There have been no changes to the Directors’ remuneration policy, as approved by shareholders at the 2014 AGM, and it is reproduced in full
for both ease of reference and to provide context to the decisions taken by the Committee during the year. The annual remuneration report
will be put forward for your consideration and approval by advisory vote at the AGM on 21 September 2016.
Diageo’s remuneration principles

The principles underpinning executive remuneration remain fundamentally unchanged, with sustainable performance and long-term
value creation for shareholders at the heart of our remuneration policies and practices:
• Delivery of business strategy: Short- and long-term incentive plans for Executive Directors and senior managers reward the
achievement of Diageo’s business strategy and performance goals.
• Consistent performance: The focus is on the delivery of performance in a consistent and responsible way which also creates long-term
value for our shareholders. Alignment between the interests of Executive Directors and shareholders remains a key principle, with
Executive Directors required to acquire and hold Diageo shares over the long term.
• Performance-related compensation: Reward components offer a balanced mix of short- and long-term incentives conditional upon
achieving stretching performance targets. Performance measures such as organic net sales, organic operating margin, cash efficiency,
relative total shareholder return (TSR) and earnings per share (eps) growth are key drivers of growth for the business that are aligned
with the creation of shareholder value.
• Competitive total remuneration: Reward levels are framed in the context of total remuneration packages paid by relevant global
comparators. In competition with similar global companies, the ability to recruit and retain the best talent from all over the world is
critical to Diageo’s continued business success.
• Simplicity and transparency: The Committee seeks to embed simplicity and transparency in the design and delivery of executive
reward programmes. Performance targets clearly align with the company’s short- and long-term goals.
Focus and highlights in 2016

The Committee continued its focus on:
• Understanding and responding to shareholder feedback and fostering continuous open dialogue;
• Reviewing and assessing the ongoing appropriateness of the current remuneration policy, executive plan design and target stretch; and
• Ensuring that remuneration arrangements continue to attract and retain the highest quality global talent with a clear link between
performance and reward.
The Committee undertook a comprehensive review of total remuneration for Executive Directors and Executive Committee members ahead
of the 2016 annual salary review, and, supported by the Committee’s third party remuneration advisers, Kepler (a brand of Mercer), were
satisfied that the shape and levels of our remuneration practice are appropriately positioned against those of comparator companies of similar
size and global scope.
The Chief Executive, Ivan Menezes, requested that the company contribution to his retirement benefit plan be reduced from 40% to 30%
of salary. This change was implemented on 1 July 2016. There was no compensatory payment or benefit in exchange for this reduction
in contribution.
Directors’ remuneration report DIAGEO Annual Report 2016 67
On 9 November 2015, Kathryn Mikells joined the company and was appointed Chief Financial Officer. In accordance with the approved
Strategic report
remuneration policy, the Committee agreed a remuneration package that was in line with current practice at the Executive Committee level
in terms of the mix of fixed and variable remuneration and also appropriately positioned against the external market.
During the year, the Committee also reviewed and increased the Chairman’s fee from £500,000 to £600,000 per annum effective from
1 January 2016, following five successive years of no increases. The Chairman’s fee is appropriately positioned against our comparator group of
FTSE30 companies excluding financial services. The next review is scheduled for December 2017. Dr Franz B Humer will step down as
Chairman of the Board on 1 January 2017 and will be succeeded by Javier Ferrán, who joined the Board on 22 July 2016. Javier Ferrán’s fee from
1 January 2017 will be £600,000 per annum.
Following a comprehensive review of competitive market data, the Board also reviewed the fees for Non-Executive Directors and increased
the basic fee from £84,000 to £87,000 per annum and the additional Senior Non-Executive Director fee from £20,000 to £25,000 per annum,
also effective from 1 January 2016.
The clawback provisions in respect of annual incentive and long-term incentive awards to the Executive Directors have now been
extended to all members of the Executive Committee, in addition to the existing malus provisions that apply to all participants under the
Diageo Long-term Incentive Plan, as approved by the Committee last year.
Reward in 2016 at a glance

Base salary 2% increase for both the Chief Executive and the Chief Financial Officer in October 2016 (versus
Governance
budgeted 2.2% in the United Kingdom and 3% in North America for the wider workforce)
Allowances and benefits Unchanged from last year

Retirement benefits Unchanged from last year
Annual incentive Pay-out above target, delivering 64.8% and 69.8% of maximum opportunity for the Chief Executive
and Chief Financial Officer respectively
Long-term incentives 30.6% vesting of performance shares and nil vesting of share options
As a reflection of the company’s delivery of a good set of results in the year (see key performance indicators on pages 8 and 9), total variable
pay to the Executive Directors in respect of the year ended 30 June 2016 is higher than the year ended 30 June 2015.
Over the period 1 July 2013 to 30 June 2016 (the performance period for long-term incentive awards that vest this year in September 2016),
Diageo’s share price grew by 7.9%, from 1933.5 pence to 2086.5 pence, and the company paid a total dividend of 160.0 pence per share.
Dividend distribution to shareholders in the year ended 30 June 2016 increased by 7.6% compared to the previous year.
Planned for 2017

Looking ahead to the year ending 30 June 2017, we will continue to operate executive remuneration arrangements in line with the approved
remuneration policy. No changes are proposed to the design of the annual or long-term incentive plan for the year ahead.
We will be reviewing our remuneration policy and actively engaging with shareholders and their advisory bodies in advance of putting the
policy to shareholder vote at the 2017 AGM.
As you read our remuneration policy and annual remuneration report on the following pages, I hope it is clear how the Committee’s
decisions support the business strategy and the delivery of Diageo’s performance ambition.
We were very pleased to receive a very strong vote in favour of our remuneration report last year. I highly value the direct engagement and
feedback from our shareholders and their representative bodies on Diageo’s remuneration policy and look forward to welcoming you and
receiving your support again at the AGM this year.
Lord Davies of Abersoch

Senior independent Non-Executive Director and
Chairman of the Remuneration Committee

DIRECTORS’ for shareholders. Thus, variable elements of remuneration are

dependent upon the achievement of performance measures
REMUNERATION POLICY that are identified as key consistent and responsible growth
drivers for the business and that are aligned with the creation
This section of the report sets out the policy for Executive Directors’ of shareholder value.
remuneration. The policy was put to shareholders for approval in a • Variable with performance: A significant proportion of total
binding vote at the AGM in 2014, in accordance with section 439A remuneration for the Executive Directors is linked to business and
of the Companies Act 2006, and formally came into effect from individual performance so that remuneration will increase or
18 September 2014, the date of the AGM. The policy section of the decrease in line with performance.
report below is as disclosed in the 2014 Directors’ remuneration • Share ownership: Full participation in incentives is conditional upon
report, with the exception of the reference to the number of building up a significant personal shareholding in Diageo to
employees across Diageo, a minor addition to the DLTIP section of ensure the company’s leaders think and act like owners.
the policy table to reflect the clarification note released following
• Cost effectiveness: Fixed elements of remuneration are determined
publication of the 2014 Directors’ remuneration report, updates to
by reference to the median of the market, individual experience
the illustrations of remuneration policy charts to reflect projected
and performance, and other relevant factors to ensure
remuneration for 2017 and amendments to reflect the change in
competitiveness while controlling fixed costs to maximise
incumbent for the Chief Financial Officer role. The remuneration
efficiency.
policy as disclosed in the 2014 Directors’ remuneration report can be
found on the Diageo website at: http://www.diageo.com/en-row/
Future policy table
newsmedia/Pages/resource.aspx?resourceid=2320.
Set out below is the remuneration policy for Executive Directors
Remuneration policy framework which has been applied from the date of shareholder approval at
The remuneration structures and performance measures used in the AGM on 18 September 2014.
executive incentive plans are designed to support Diageo’s business
strategy as follows:
• Focused on consistent growth drivers: As a public limited company,
Diageo has a fiduciary responsibility to maximise long-term value
Base salary Benefits

Purpose and link to strategy Purpose and link to strategy
Supports the attraction and retention of the best global talent with Provides market competitive and cost effective benefits.
the capability to deliver Diageo’s strategy and performance goals.
Operation
Operation • The provision of benefits depends on the country of residence of
• Normally reviewed annually or following a change in the Executive Director and may include a company car or car
responsibilities with changes usually taking effect from 1 October. allowance, the provision of a car and contracted car service or
• The Remuneration Committee considers the following equivalent, product allowance, life insurance, accidental death &
parameters when reviewing base salary levels: disability insurance, medical cover for the Executive Director and
family and financial counselling.
––Pay increases for other employees across the group;
––Economic conditions and governance trends; • The Remuneration Committee has discretion to offer additional
––The individual’s performance, skills and responsibilities; allowances, or benefits, to Executive Directors, if considered
––Base salaries (and total remuneration) at companies of similar appropriate and reasonable. These may include relocation
size and international scope to Diageo, with roles typically expenses, housing allowance and school fees where a Director
benchmarked against the top 30 companies in the FTSE100 by has to relocate from his/her home location as part of their
market capitalisation excluding companies in the financial appointment.
services sector, or against similar comparator groups in other Opportunity
locations dependent on the Executive Director’s home market. The benefits package is set at a level which the Remuneration
Opportunity Committee considers:
Salary increases will normally be in line with increases awarded to • Provides an appropriate level of benefits depending on the role
other employees in relevant markets in which Diageo operates, and individual circumstances; and
typically the United Kingdom and the United States, unless there is • Is in line with comparable roles in companies of a similar size and
a change in role or responsibility, or the need to align an Executive complexity in the relevant market.
Director’s salary to market level over time (provided the increase is
merited by the individual’s contribution and performance).
Post-retirement provisions Diageo long-term incentive plan (DLTIP)
Strategic report
Purpose and link to strategy Purpose and link to strategy
Provides cost-effective, competitive post-retirement benefits. Provides focus on delivering superior long-term returns
to shareholders.
Operation
• Provision of market competitive pension arrangements or Operation
a cash alternative based on a percentage of base salary. • An annual grant of performance shares and/or market price share
• Further detail on current pension provisions for Executive options which vest subject to a performance test and continued
Directors is disclosed in the annual report on remuneration. employment normally over a period of three years.
• Measures and stretching targets are reviewed annually by the
Opportunity Remuneration Committee for each new award. Details of the
• The maximum company pension contribution is 30% of base measures, weightings and targets applicable for the financial year
salary for any new external appointments to an Executive under review are provided in the annual report on remuneration.
Director position.
• Following vesting there is a further retention period of two years.
• Current legacy company contributions for Ivan Menezes and Executive Directors are able to exercise an option or sell sufficient
Deirdre Mahlan in the year ended 30 June 2016 were 40% and shares to cover any tax liability when an award vests, provided
Governance
35% of base salary, respectively. At his request, Ivan Menezes’ they retain the net shares arising for the two-year retention
company contribution was reduced from 40% to 30% effective period.
1 July 2016. Kathryn Mikells’ company contribution in the year
ended 30 June 2016 was 20% of base salary. • 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
Annual incentive plan (AIP) Committee at the end of the vesting period.
Purpose and link to strategy • The Committee has discretion to reduce the number of shares
Incentivises year-on-year delivery of Diageo’s annual financial and which vest (subject to HMRC rules regarding approved share
strategic targets. Provides focus on key financial metrics and the options), for example in the event of a material performance
individual’s contribution to the company’s performance. failure, or a material restatement of the accounts. There is an
extensive malus clause for awards made from September 2014.
Operation The Committee has discretion to decide that:
• Performance measures and stretching targets are set annually ––the number of shares subject to the award will be reduced;
by the Remuneration Committee by reference to the annual ––the award will lapse;
operating plan. ––retention shares (i.e. vested shares subject to the additional
two-year retention period) will be forfeited;
• The level of award is determined with reference to Diageo’s
overall financial and strategic performance and individual ––vesting of the award or the end of any retention period will be
performance and is paid out in cash after the end of the delayed (e.g. until an investigation is completed);
financial year. ––additional conditions will be imposed on the vesting of the
award or the end of the retention period; and/or
• The Committee has discretion to amend the level of payment ––any award, bonus or other benefit which might have been
if it is not deemed to reflect appropriately the individual’s granted or paid to the participant in any later year will be
contribution or the overall business performance. Any reduced or not awarded.
discretionary adjustments will be detailed in the following Malus provisions will apply up to delivery of shares at the end
year’s annual report on remuneration. of the retention period (as opposed to the vesting date).
• The Committee has discretion to apply clawback to bonus, i.e. • Further details of the DLTIP are set out in the annual report
the company may seek to recover bonus paid, in exceptional on remuneration on pages 76-79.
circumstances such as gross misconduct or gross negligence
during the performance period. Opportunity
• The maximum annual grant is 500% of salary in performance
• Details of the AIP are set out in the annual report on
share equivalents (where a market price option is valued at
remuneration on pages 75 and 76.
one-third of a performance share). As clarified in the statement of Additional information for shareholders
Opportunity further information on 15 August 2014, under the DLTIP no more
For threshold performance, up to 50% of salary may be earned, than 375% of salary will be awarded in face value terms
with up to 100% of salary earned for on-target performance and a in options to any Executive Director in any year.
maximum of 200% of salary payable for outstanding performance. • Threshold vesting level of 20% of maximum with straight-line
vesting up to 100% at maximum for financial metrics and a
Performance conditions
ranking profile for relative total shareholder return.
Annual incentive plan awards are based 70%-90% on financial
measures which may include, but are not limited to, measures of
revenue, profit and cash and 10%-30% on broader objectives
based on individual contribution and medium-term strategic
goals. Details of the measures and weightings applicable for the
year ending 30 June 2017 are set out on page 76. Details of the
targets will be disclosed retrospectively in next year’s annual report
on remuneration, when they are no longer deemed commercially
sensitive by the Board.
NOTES TO THE POLICY TABLE

Diageo long-term incentive plan (DLTIP)
Performance conditions Performance measures and targets
• The vesting of awards is linked to a range of measures which may Further details of AIP performance measures and DLTIP performance
include, but are not limited to: measures and targets that will apply for awards made in September
––a growth measure (e.g. net sales, eps); 2016, and how they are aligned with company strategy and the
––a measure of efficiency (e.g. operating margin, operating creation of shareholder value, are set out in the annual report on
cash conversion, return on invested capital (ROIC)); and remuneration, on pages 76 and 79.
––a measure of Diageo’s relative performance in relation to Performance targets are set to be stretching yet achievable, and
its peers (e.g. relative total shareholder return). take into account the company’s strategic priorities and business
Measures that apply to performance shares and market price environment. The Committee sets targets based on a range of
options may differ, as is the case for current awards. Weightings reference points including the corporate strategy and broker
may vary year-on-year, subject to a minimum weighting of forecasts for both Diageo and its peers.
25% of the total award. Details of the measures, including targets
for the awards to be made in September 2016 are set out on Differences in remuneration policy for other employees
page 79. The remuneration approach for Executive Directors is consistent with
• The Remuneration Committee has discretion to amend the the reward package for members of the Executive Committee and
performance conditions in exceptional circumstances if it the senior management population.
considers it appropriate to do so, e.g. in cases of accounting Generally speaking, a much higher proportion of total
changes, M&A activities and disposals. Any such amendments remuneration for the Executive Directors is linked to business
would be fully disclosed and explained in the following year’s performance, compared to the rest of the employee population,
annual report on remuneration. so that remuneration will increase or decrease in line with business
performance and to align the interests of Executive Directors and
shareholders. The structure of the reward package for the wider
All-employee share plans employee population is based on the principle that it should be
sufficient to attract and retain the best talent and be competitive
Purpose and link to strategy
within our broader industry, remunerating employees for their
To encourage broader employee share ownership through locally
contribution linked to our holistic performance whilst mindful not
approved plans.
to over-pay. It is driven by local market practice as well as level of
Operation seniority and accountability, reflecting the global nature of
• The company operates tax-efficient all-employee share savings Diageo’s business.
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
UK Freeshares: based on Diageo plc financial measures which
may include, but are not limited to, measures of revenue, profit
and cash.
Shareholding requirement
Purpose and link to strategy
Ensures alignment between the interests of Executive Directors
and shareholders.
Operation
• The minimum shareholding requirement is 300% of base salary
for the Chief Executive and 250% of base salary for any other
Executive Directors.
• Executive Directors have five years from their appointment to the
Board in which to build up their shareholding.
• Full participation in the DLTIP is conditional upon meeting this
requirement beyond the five-year timeframe.
Illustrations of application of the remuneration policy Approach to recruitment remuneration
Strategic report
The graphs below illustrate scenarios for the projected total The Remuneration Committee’s overarching principle for recruitment
remuneration of Executive Directors at three different levels of remuneration is to pay no more than is necessary to attract an
performance: minimum, on-target and maximum. Note that the Executive Director of the calibre required to shape and deliver
projected values exclude the impact of any share price movements. Diageo’s business strategy in recognition that Diageo competes for
These charts reflect projected remuneration for the financial year talent in a global marketplace. The Committee will seek to align the
ending 30 June 2017. remuneration package with Diageo’s remuneration policy as laid out
above, but retains the discretion to offer a remuneration package
Ivan Menezes which is necessary to meet the individual circumstances of the
recruited Executive Director and to enable the hiring of an individual
Minimum 100% Total $2,244 (£1,516) with the necessary skills and expertise. However, except as described
below, variable pay will follow the policy.
On-target 42% 29% 29% Total $5,345 (£3,612)
Diageo is a global organisation operating in more than 180
Maximum 17% 24% 59% Total $13,097 (£8,849) countries around the world. The ability, therefore, to recruit and retain
the best talent from all over the world is critical to the future success
Thousands 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
of the business. People diversity in all its forms is a core element of
Kathryn Mikells Diageo’s global talent strategy and, managed effectively, is a key
Governance
driver that will deliver Diageo’s performance ambition.
Minimum 100% Total £840 On appointment of an external Executive Director, the Committee
39% 31% 30% Total £2,140
may decide to compensate for variable remuneration elements the
On-target
Director forfeits when leaving their current employer. In doing so,
Maximum 16% 25% 59% Total £5,348 the Committee will ensure that any such compensation would have
a fair value no higher than that of the awards forfeited, and would
Thousands 0 1,000 2,000 3,000 4,000 5,000 6,000
generally be determined on a comparable basis taking into account
Salary, benefits and pension factors including the form in which the awards were granted,
Annual incentive performance conditions attached, the probability of the awards
Long-term incentives
vesting (e.g. past, current and likely future performance) as well as the
vesting schedules. Depending on individual circumstances at the
Basis of calculation and assumptions:
The ‘Minimum’ scenario shows fixed remuneration only, i.e. base salary for financial year time, the Committee has the discretion to determine the type of
2017, total value of contractually agreed benefits for 2017, and pension. The pension award (i.e. cash, shares or options, holding period and whether or not
value is based on the estimated pension benefits accrued over the financial year ending performance conditions would apply).
30 June 2017. These are the only elements of the Executive Directors’ remuneration
packages which are not subject to performance conditions. Any such award would be fully disclosed and explained in the
following year’s annual report on remuneration. When exercising its
The ‘On-target’ scenario shows fixed remuneration as above, plus a target pay-out of
50% of the maximum annual bonus and threshold performance vesting for long-term discretion in establishing the reward package for a new Executive
incentive awards. Director, the Committee will very carefully consider the balance
The ‘Maximum’ scenario reflects fixed remuneration, plus full pay-out of annual and between the need to secure an individual in the best interests of the
long-term incentives. company against the concerns of investors about the quantum in the
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.
In the event that an internal candidate was promoted to the Board,
legacy terms and conditions would normally be honoured, including
pension entitlements and any outstanding incentive awards.

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
Kathryn Mikells 1 October 2015
Deirdre Mahlan 1 July 2010
Notice period The contracts provide for a period of six months’ notice by the Executive Director or 12 months’ notice by the
company. 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 (excluding incentive plans). The service contracts also provide for the
payment of outstanding pay and bonus, if Executive Directors are terminated 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. For these purposes, salary in respect of one
day of holiday entitlement will be calculated as 1/261 of salary.
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. In the case of Deirdre Mahlan, the mitigation provision may be excluded in
the event of termination as a result of being located permanently outside the United Kingdom and Ireland.
Annual incentive plan Where the Executive Director leaves for reasons including retirement, death in service, disability, ill-health, injury,
(AIP) redundancy, transfer out of the group and other circumstances at the Remuneration Committee’s discretion (‘Good
Leaver Reasons’) during the financial year, they are 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 will be made.
The amount is subject to performance conditions being met and at the discretion of the Committee. The
Committee has discretion to determine an earlier payment date, for example on death in service.
Diageo 2014 long-term When an Executive Director leaves for any reason other than Good Leaver Reasons, all unvested awards generally
incentive plan (DLTIP) lapse immediately. In cases where Good Leaver Reasons apply, awards vest on the original vesting date unless the
Remuneration Committee decides otherwise (for example in the case of death in service). 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).
Awards may be adjusted on a variation of share capital, demerger or other similar event.
The Remuneration Committee may amend the plans, except that any changes to the advantage of participants
require shareholder approval, unless the change relates to the administration, or taxation of the plan or participants,
or is needed to ensure that the plans operate effectively in another jurisdiction.
Details of existing awards are set out in the annual report on remuneration.
Repatriation 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 costs for the repatriation
of Good Leavers.
Existing arrangements Chairman of the Board and Non-Executive Directors
Strategic report
The Remuneration Committee reserves the right to make any
remuneration payments and payments for loss of office All Non-Executive Directors have letters of appointment.
notwithstanding that they are not in line with the policy set out A summary of their terms and conditions of appointment
above where the terms of the payment were agreed (i) before the is available at www.diageo.com. The Chairman of the Board,
policy or the relevant legislation came into effect or (ii) at a time Dr Franz B Humer, commenced his appointment on 1 July 2008. Dr
when the relevant individual was not a Director of the company Humer had a letter of appointment for an initial five-year term from
and, in the opinion of the Committee, the payment was not in 1 July 2008 which has been extended to 31 December 2016. It is
consideration for the individual becoming a Director of the terminable on six months’ notice by either party or, if terminated
company. For these purposes ‘payments’ include the Committee by the company, by payment of six months’ fees in lieu of notice.
satisfying awards of variable remuneration and, in relation to an Dr Humer will step down as Chairman of the Board on 1 January
award over shares, the terms of the payment which are ‘agreed’ at 2017 and will be replaced by Javier Ferrán, who joined the Board
the time the award is granted (including awards under the PSP and on 22 July 2016.
SESOP). Details of outstanding share awards are set out in the annual Opportunity
report on remuneration. For the purposes of section 226D(6) of the • Fees for Non-Executive Directors are within the limits set by the
Companies Act, the effective date is the end of the financial year shareholders from time to time, currently an aggregate of
starting in 2014. £1,000,000, as approved by shareholders at the October 2005
Governance
External appointments AGM. This limit excludes the Chairman’s fees.
Executive Directors may accept external appointments as Non- • Current fee levels are disclosed in the annual report on
Executive Directors of other companies and retain any related remuneration.
fees paid to them, subject to the specific approval of the Board
in each case. Consideration of employment conditions elsewhere
in the company
When reviewing and determining pay for Executive Directors,
Chairman of the Board and Non-Executive Directors the Committee takes into account the level and structure of
Purpose and link to strategy remuneration as well as salary budgets for other employees in the
Supports the attraction, motivation and retention of world-class group. More specifically, the Committee reviews annual salary
talent and reflects the value of the individual, their skills and increase budgets for the general employee population in the United
experience, and performance. Kingdom and North America as well as the remuneration structure
and policy for the global Senior Management population.
Operation Diageo employs 32,078 employees and operates in more than
• Fees for the Chairman and Non-Executive Directors are normally 180 countries around the world. Given its global scale and complexity,
reviewed annually. the Committee has not consulted directly with employees when
• A proportion of the Chairman’s annual fee is used for the designing the remuneration policy for its Executive Directors.
monthly purchase of Diageo ordinary shares, which have to be Diageo runs annual employee surveys which give employees the
retained until the Chairman retires from the company or ceases opportunity to give feedback and express their views on a variety
to be a Director. of topics, including remuneration. Any comments relating to
• Fees are reviewed in the light of market practice in the top Executive Directors’ remuneration are fed back to the
30 companies in the FTSE100 by market capitalisation (excluding Remuneration Committee.
companies in the financial services sector) and anticipated
workload, tasks and potential liabilities. Consideration of shareholder views
The Committee values the continued dialogue with Diageo’s
• The Chairman and Non-Executive Directors do not participate shareholders and engages directly with them and their
in any of the company’s incentive plans or receive pension representative bodies at the earliest opportunity when setting out
contributions or benefits. Diageo’s remuneration policy and approach, proposed base salary
• The Chairman and the Non-Executive Directors are eligible to increases for the Executive Directors and targets for the long-term
receive a product allowance or cash equivalent at the same level incentive plan award. This year, the company has engaged with
as the Executive Directors. shareholders about the base salary proposals for 2016, the fee review Additional information for shareholders
for the Chairman and Non-Executive Directors, long-term incentive
plan targets for awards to be made in 2016 as well as the buy-out
share award to the Chief Financial Officer on appointment to
the company.
ANNUAL REPORT ON REMUNERATION

Single total figure of remuneration for Executive Directors (audited)
The table below details the Executive Directors’ remuneration for the year ended 30 June 2016.
Ivan Menezes(i) Kathryn Mikells(ii) Deirdre Mahlan(iii)
2016 2016 2015 2015 2016 2015 2016 2015
Fixed pay ’000 ’000 ’000 ’000 ’000 ’000 ’000 ’000
Salary £1,027 $1,520 £968 $1,520 £419 – £258 £727

Benefits (iv)
£78 $115 £155 $243 £64 – £102 £34
Pension(v) £486 $719 £424 $666 £83 – £105 £267
Total fixed pay £1,591 $2,354 £1,547 $2,429 £566 £465 £1,028
Performance related pay

Annual incentive £1,330 $1,969 £535 $840 £585 – £363 £428
Long-term incentives (vi)
£1,162 $1,720 £1,380 $2,167 £1,660 – £245 £870
Other incentives (vii)
– – – – – – £3 £4
Total remuneration for Executive
Director appointment £4,083 $6,043 £3,462 $5,436 £2,811 – £1,076 £2,330
Other performance related pay

(Granted prior to appointment as Executive Director – performance conditions relate to previous role)
Long-term incentives (viii) £357 $528 £330 $518 – – – –
TOTAL SINGLE FIGURE £4,440 $6,571 £3,792 $5,954 £2,811 – £1,076 £2,330
Notes
(i) The amounts shown in sterling are converted using the cumulative weighted average exchange rate for the respective financial year. For the year ended 30 June 2015, the
exchange rate was £1 = $1.57 and for the year ended 30 June 2016 the exchange rate was £1 = $1.48.
(ii) Kathryn Mikells was appointed as Chief Financial Officer on 9 November 2015, replacing Deirdre Mahlan.
(iii) Deirdre Mahlan stepped down from the board and was appointed President, North America on the Executive Committee on 9 November 2015. Deirdre Mahlan’s remuneration
has been pro-rated to reflect the period 1 July 2015 to 9 November 2015.
(iv) Benefits is the gross value of all taxable benefits. For Ivan Menezes, these include medical insurance (£17k), company car allowance (£17k), chauffeur (£8k), financial counselling
(£33k), product allowance, flexible benefits allowance and life and long-term disability cover. Deirdre Mahlan’s benefits include flexible benefits allowance (£6k), contracted car
service (£6k), financial counselling (£7k), medical insurance, life cover, product allowance and the cost of relocating her from the United Kingdom to the United States (£81k).
Kathryn Mikells’ benefits include flexible benefits allowance (£13k), financial counselling (£24k), contracted car service, life cover, product allowance and relocation costs in
relation to her move from the United States to the United Kingdom (£25k).
(v) Pension benefits earned during the year represent the increase in the pension fund balances over the year in the Diageo North America Inc. pension plans over and above
the increase due to inflation. As Ivan Menezes has been a deferred member of the Diageo Pension Scheme (DPS) in the United Kingdom since 31 January 2012, and receives
standard statutory increases in deferment the UK pension amount that accrued over the two years in excess of inflation is nil. Kathryn Mikells became a director and started
accruing benefits in the Supplemental Executive Retirement Plan (SERP) with effect from 9 November 2015. The pension input amount for the year ended 30 June 2016 only
reflects the period from 9 November 2015 and Kathryn Mikells did not build up any pension benefits prior to that point. Deirdre Mahlan’s accrued benefits over the year ended
30 June 2016 have been pro-rated to reflect the period of time she was an Executive Director from 1 July 2015 to 9 November 2015. In previous years, Ivan Menezes’ and
Deirdre Mahlan’s deferred pension benefits in the US Cash Balance Plan and the Benefits Supplemental Plan (BSP) have been disclosed although benefits accrual ceased in
August 2012 and June 2010 respectively. On further review, and in line with the disclosure requirements, these deferred benefits have been excluded from 2016 remuneration
and 2015 has been restated in line with this revised methodology.
(vi) Long-term incentives represent the estimated gain delivered through options and performance shares where performance conditions have been met in the respective
financial year. For 2016, this includes performance shares awarded under the PSP in 2013 and due to be released in September 2016 and the estimated value of accrued
dividend shares on this award. Though the outcome of the performance conditions is known, the share price on the vesting date is estimated, using the average market value
of Diageo shares between 1 April and 30 June 2016 (1875.1 pence for ordinary shares and $108.14 for ADRs) for the purpose of this calculation. Share options awarded under
the SESOP in 2013 all lapsed due to the performance condition not being met. Long-term incentives for 2015 have been adjusted to reflect the actual share price on the date of
vesting on 1 October 2015 (1765.5 pence for ordinary shares and $107.50 for ADRs). For further information on the SESOP and PSP performance conditions and vesting outcomes
please refer to the ‘LTIP awards vesting in the year ended 30 June 2016’ section of the report on pages 76 and 77. For Kathryn Mikells, long-term incentives represents the face
value of 87,736 time-vesting replacement share awards (not subject to performance conditions) made on 9 November 2015 in recognition of share awards forfeited from her
former employer. The average closing share price of an ordinary share over the three dealing days prior to the date of grant was 1892.0 pence.
(vii) Other incentives include the face value of awards made under all-employee share plans. Awards do not have performance conditions attached.
(viii) Ivan Menezes retains interests in long-term incentive awards that were granted to him in 2012, prior to joining the board under ‘below-board’ plans (Discretionary Incentive
Plan), details of which are shown on page 78. The value of the second tranche of the award based on performance for the year ended 30 June 2016 is shown in the table above
and calculated on the basis of the average market value of Diageo shares between 1 April and 30 June 2016 ($108.14 for ADRs). The value of the part of the award based on
continuing employment for the year ended 30 June 2016 is not included in the table above and amounts to 14,642 ADRs. The second tranche of the award will vest on
8 March 2017. For 2015, the value of the first tranche of the award that vested on 8 March 2016 has been restated to account for the share price on the date of vesting ($106.14
for ADRs).
Strategic report
Salary
Salary increases to be applied in the year ending 30 June 2017
In June 2016, the Remuneration Committee reviewed base salaries for senior management and agreed new salaries which will apply from
1 October 2016. In determining these salaries, the Remuneration Committee took into consideration a number of factors including general
employee salary budgets and employment conditions, individual performance and experience, and salary positioning relative to internal and
external peers. The overall budgeted salary increase for the salary review in October 2016 is 2.2% of base salary for the business in the United
Kingdom and 3% in North America.
The Committee considered very carefully the total remuneration positioning of the Chief Executive and Chief Financial Officer, the salary
budget for all employees in the United Kingdom and the expectations of shareholders with respect to continuing pay restraint. As a result, it
was agreed that there would be a 2% salary increase for both the Chief Executive and the Chief Financial Officer, effective from 1 October 2016.
Ivan Menezes Kathryn Mikells(i)
Salary at 1 October (‘000) 2016 2015 2016 2015
Base salary $1,550 $1,520 £663 £650
% increase (over previous year) 2% 0% 2% –
Governance
(i) For Kathryn Mikells, the 2015 salary refers to her salary on appointment on 9 November 2015.
Annual incentive plan (AIP) (audited)

AIP payout for the year ended 30 June 2016
Performance against the group financial measures and the Individual Business Objectives (IBOs), as assessed by the Remuneration Committee,
is described below.
The overall level of performance achieved resulted in an AIP award equating to 129.6% of base salary for Ivan Menezes and 139.6% of base
salary for both Kathryn Mikells and Deirdre Mahlan (pro-rated to reflect the period of their appointments on the Board). The actual awards
received in respect of their Executive Director appointments are shown in the ‘single total figure of remuneration’ table on page 74.
Annual incentive plan (AIP) outcome in the year ended 30 June 2016
Payout
Diageo group(i) (% of total AIP
(80% of total AIP opportunity) opportunity)
Net sales measure(ii) (% growth) Threshold Target Maximum
(25% of total)
Performance target 1.9% 3.9% 5.8%
Actual performance 3.2%
AIP opportunity 6.25% 12.50% 25.00% 10.4%
Profit before exceptional items Threshold Target Maximum

and tax measure(iii) (% growth) Performance target 4.6% 7.0% 9.2%
(25% of total)
AIP opportunity 6.25% 12.50% 25.00% 25.0%
Operating cash conversion Threshold Target Maximum

measure(iv) (%) Performance target 97.0% 102.0% 107.0%
(30% of total)
AIP opportunity 7.5% 15.0% 30.0% 21.9%

Total Diageo group AIP outcome 20% 40% 80% 57.3%
(i) Performance against the AIP measures is calculated using 2016 budgeted exchange rates in line with management reporting and excludes the impact of IAS 21 in respect
of short-term intercompany funding balances and IAS 39 in respect of market value movements as recognised in net finance charges and any exceptional items.
(ii) For AIP purposes, the net sales value measure is calculated after adjustments for acquisitions and disposals.
(iii) For AIP purposes, the profit before exceptional items and tax measure is calculated as operating profit plus earnings from associated companies less net interest, IAS 21/39
adjustments, adjustments for acquisitions and disposals and year-on-year foreign exchange on interest.
(iv) The operating cash conversion measure 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 ratio is stated at the budgeted exchange rate for the respective year in line with management reporting and is expressed as a percentage.
Payout
Total Total Total Total
Individual Individual Bonus Objectives (IBOs)(v) IBOs Group (% max) (% salary) (£’000) ($’000)
Maximum AIP opportunity 20% 80% 100% 200%
Ivan Menezes – Delivery of investor critical growth priorities
CEO – Deliver a transformation in commercial standards
7.5% 57.3% 64.8% 129.6% £1,330 $1,969
and sales capabilities
– Enhance our Corporate Reputation
Kathryn Mikells – Deliver cash targets versus plan
CFO – Drive improvements in Working Capital through focus
on supply chain interventions
12.5% 57.3% 69.8% 139.6% £585
– Build support for Diageo investment story of good
sustainable performance, including demonstration
of commitment to cost
Deirdre Mahlan – Deliver cash targets versus plan
Former CFO – Drive improvements in Working Capital through focus
on supply chain interventions
12.5% 57.3% 69.8% 139.6% £363
– Build support for Diageo investment story of good
sustainable performance, including demonstration
of commitment to cost
(v) The Committee assessed the Executive Directors’ performance against each of the IBOs and awarded a rating based on whether they had partially met, achieved or exceeded
each goal. The average of all IBO ratings (weighted 50% on the first goal and 25% on each of the second and third goals) is shown as the final payout against the IBO element
in the table above.
AIP design for the year ending 30 June 2017 Long-term incentive plans (LTIPs) (audited)
The measures and targets used in the AIP are reviewed annually by LTIP awards vesting in the year ended 30 June 2016 (audited)
the Remuneration Committee and are chosen to drive financial and Until 30 June 2014, long-term incentives were a combination of share
individual business performance goals related to the company’s options under the Senior Executive Share Option Plan 2008 (SESOP)
short term strategic operational objectives. The AIP design for the and performance share awards under the Performance Share Plan
year ending 30 June 2017 will comprise of four measures (weightings 2008 (PSP). Awards were designed to incentivise Executive Directors
in brackets): and senior managers to deliver long-term sustainable performance.
• Profit before exceptional items and tax (% growth) (25%): Awards made under both sets of plans were subject to performance
stretching profit targets drive operational efficiency and influence conditions normally measured over a three-year period. As approved
the level of returns that can be delivered to shareholders through by shareholders at the AGM in September 2014, these plans were
increases in share price and dividend income; replaced by the Diageo Long-Term Incentive Plan (DLTIP) for awards
• Net sales (25%): year-on-year net sales growth is a key from 2014 onwards.
performance measure;
SESOP – granted in September 2013, vesting in September 2016
• Operating cash conversion (30%): ensures focus on efficient (audited)
conversion of profit into cash; and On 5 September 2013, Ivan Menezes and Deirdre Mahlan received
• Individual business objectives (20%): are measurable deliverables awards of 46,239 (ADRs) and 135,022 (ordinary shares) market price
that are specific to the individual and are focused on supporting options, respectively, under the SESOP. Awards were subject to a
the delivery of key strategic objectives. performance condition based on compound annual growth in
Details of the targets for the performance period ending adjusted eps over a three-year period. For the purpose of the SESOP,
30 June 2017 will be disclosed retrospectively in next year’s annual an adjusted measure of eps is used to ensure that elements such as
report on remuneration, by which time they will no longer be exceptional items and the impact of movements in exchange rates
deemed commercially sensitive by the Board. are excluded from year-on-year comparisons of performance.
Options only vest when stretching adjusted eps targets are achieved.
Vesting is on a pro rata basis ranging from a threshold level of 25% to
a maximum level of 100%.
The adjusted eps growth targets and actual performance for the 2013 PSP – awarded in September 2013, vesting in September 2016
Strategic report
SESOP awards are set out below: (audited)
Vesting
On 5 September 2013, Ivan Menezes and Deirdre Mahlan received
Vesting of 2013 SESOP awards Target (% maximum) awards of 47,484 (ADRs) and 110,241 (ordinary shares) performance
Compound annual adjusted eps growth over shares, respectively, under the PSP. Awards vest after a three-year
1 July 2013 – 30 June 2016 period subject to the achievement of specified performance tests.
Threshold 7% 25% Notional dividends accrue on awards and are paid out either in cash
Maximum 11% 100%
or shares in accordance with the vesting schedule.
For the 2013 awards, the primary performance test is split
Actual 1.8% 0.0%
between three equally weighted performance measures:
1. A comparison of Diageo’s three-year total shareholder return
Accordingly, the 2013 SESOP award, which is due to vest in (TSR) – the percentage growth in Diageo’s share price (assuming
September 2016, has not met the threshold under the performance all dividends and capital distributions are re-invested) – with the
condition and the options under the award will lapse. TSR of a peer group of international drinks and consumer goods
companies. TSR is calculated on a common currency (US dollar)
basis;
2. Growth in organic net sales on a compound annual basis; and
Governance
3. Total organic operating margin improvement.
For the part of the award subject to the TSR condition to vest, there must also be an improvement in the underlying financial performance of
the company. In addition, the Remuneration Committee must be satisfied that performance in both organic net sales and organic operating
margin is above an appropriate level before any of the award under either measure can be released.
The targets and vesting profile for the PSP awards granted in September 2013 are shown in the following table:
Vesting
Vesting of 2013 PSP awards Threshold Mid-point Maximum Actual (% maximum)
Organic net sales (CAGR) 5.0% 6.5% 8.0% 1.0% 0.0%
Organic operating margin improvement 75bps 100bps 125bps 120bps 91.9%
Relative total shareholder return Median ranking – Upper quintile 15th 0.0%
(ninth) (third or above)
Vesting (% maximum) 25.0% 62.5% 100% 30.6%
The three conditions are weighted equally. For operating margin and net sales, there is straight-line vesting between threshold and the
midpoint, and between the mid-point and the maximum. The full vesting profile for TSR is shown below:
Vesting profile
for DLTIP
performance
Vesting profile share awards
TSR ranking (out of 17) for PSP awards from 2014 TSR peer group (16 companies)
1st, 2nd or 3rd 100% 100% AB Inbev Mondelēz International
4th 95% 95% Brown Forman Nestlé
5th 75% 75% Carlsberg PepsiCo
6th 65% 65% Coca-Cola Pernod Ricard
7th 55% 55% Colgate-Palmolive Procter & Gamble
8th 45% 45% Groupe Danone Reckitt Benckiser
9th 25% 20% Heineken SABMiller
10th or below 0% 0% Kimberly-Clark Unilever
On the basis of this performance, the 2013 PSP award, which is due to vest in September 2016, has partially met the performance conditions
and, consequently, the shares under award will vest at 30.6% of the initial award.
The Committee has taken into consideration all factors regarding the underlying quality of the performance of the business at the end of the
performance period and is satisfied that the level of vesting is warranted.
Diageo Incentive Plan (DIP) (audited)

Ivan Menezes retains interests in awards under the Diageo Incentive Plan that were granted to him in 2012, prior to his appointment as
Executive Director. The number of shares granted to him on 8 March 2012 was 117,142 ADRs. 50% of this award is subject to meeting the
midpoint of the targets for the financial measures under the long-term incentive plan over the three-year performance periods ending
30 June 2015, 30 June 2016, 30 June 2017 and 30 June 2018. The remaining 50% is subject to continued satisfactory employment. The financial
measures under the performance part of the award are equally weighted. Actual performance for the second tranche of the 2012 DIP award
(i.e. the tranche based on performance over the three years to 30 June 2016) versus target is set out below:
Vesting of second performance-based tranche of March 2012 DIP award
Vesting
Performance measures (equally weighted) Target Actual (% of maximum)
Organic net sales growth (CAGR) 6.50% 1.0% 0%
Organic operating margin improvement 100bps 120bps 100.0%
Compound annual adjusted eps growth 9% 1.8% 0%
Total 33.3%
As the table shows, 33.3% of the performance related ADRs under the second tranche of the 2012 DIP award will vest in March 2017, subject to
continuing employment. The total award that will vest to Ivan Menezes in March 2017 will therefore be 66.6% of the second tranche (including
the ADRs that vest on time only), or 19,523 ADRs, provided he remains employed at the time of vesting. The Committee has assessed the
underlying performance of the business at the end of the performance period and is satisfied that this level of vesting is warranted. The value
of the part of the award based on performance and vesting in March 2017 is included in the single total figure of remuneration.
DLTIP awards made during the year ended 30 June 2016 (audited)
On 3 September 2015, Ivan Menezes and Deirdre Mahlan received awards of 49,825 (ADRs) and 140,515 (ordinary shares) performance shares,
respectively and 49,825 (ADRs) and 140,515 (ordinary shares) market price share options, respectively, under the DLTIP; details are provided in
the table below. The three-year period over which performance will be measured is 1 July 2015 to 30 June 2018. The performance measures
are relative total shareholder return, organic net sales growth, cumulative free cash flow and adjusted eps growth, equally weighted. 20% of
the award will vest at threshold, with straight-line vesting up to 100% if the maximum level of performance is achieved.
Awards made Exercise Face value Face value
Executive Director Date of grant Plan Share type during the year price ‘000 (% of salary)
Ivan Menezes 03/09/2015 DLTIP – share options ADR 49,825 $104.93 $5,700 375%
Ivan Menezes 03/09/2015 DLTIP – performance shares ADR 49,825 – $5,700 375%
Deirdre Mahlan 03/09/2015 DLTIP – share options Ord 140,515 1709p £2,635 360%
Deirdre Mahlan 03/09/2015 DLTIP – performance shares Ord 140,515 – £2,635 360%
The table above specifies the number of performance shares and share options initially awarded under the DLTIP. The proportion of the
awards that will vest is dependent upon the achievement of performance conditions, and the actual value may be nil. The vesting outcomes
will be disclosed in the 2018 annual report.
The face value of each award has been calculated using the share price at the time of grant. In accordance with the rules, the number of
performance shares and share options granted under the DLTIP was calculated by using the average closing share price for the last six months
of the preceding financial year (1875 pence for ordinary shares and $114.40 for ADRs). In accordance with the plan rules, the exercise price was
calculated using the average closing share price of the three days preceding the grant date (1709 pence for ordinary shares and $104.93 for
ADRs). The share price on the date of grant was 1713.5 pence for ordinary shares and $104.30 for ADRs.
DLTIP awards to be made in the year ending 30 June 2017

The long-term incentive plan (DLTIP) was approved by shareholders at the AGM in September 2014.
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 DLTIP
measures for awards to be granted in September 2016 are the same as those that applied to awards made in September 2015 and are:
• Relative total shareholder return: reflects the value of share price growth plus dividends, thus measuring the value returned on
shareholder investments;
• Organic net sales: sustained year-on-year organic net sales growth is a key performance measure;
• Cumulative free cash flow: measures the efficiency of cash management;
• Compound annual adjusted eps growth: reflects profitability and is a key measure for shareholders.
The table below outlines the targets and the vesting profile for these awards. The measures are equally weighted, with performance shares
Strategic report
subject to performance against relative total shareholder return, organic net sales and cumulative free cash flow, and share options subject to
performance against adjusted eps growth. Performance will be tested over three financial years, beginning with the year ending 30 June 2017.
Performance shares Share options
Relative total Cumulative free
shareholder Organic net sales cash flow (£m) Adjusted eps growth Vesting
return (25%) (CAGR) (25%) (25%) (CAGR) (25%) profile
Median ranking
Threshold (ninth) 3.5% £5,700m 4.0% 20%
Midpoint – 4.75% £6,400m 6.75% 60%
Upper quintile
Maximum (third or above) 6.0% £7,100m 9.5% 100%
It is intended that a performance share award of 375% of base salary and an award of market price share options of 125% of base salary (in
performance share equivalents; one market price option is valued at one-third of a performance share) will be made to Ivan Menezes in
September 2016.
Governance
It is intended that Kathryn Mikells will be awarded a performance share award of 360% of base salary and an award of market price share
options of 120% of base salary (in performance share equivalents) in September 2016.
Award on appointment in the year ended 30 June 2016 (audited)

On her appointment as Chief Financial Officer on 9 November 2015, Kathryn Mikells was awarded shares in Diageo plc in recognition of the
share awards forfeited under the terms of her previous employer’s long-term incentive plans. As prescribed by the approved remuneration
policy, the fair value of the replacement award in Diageo shares was no higher than the estimated fair value of the awards being forfeited.
The share awards that Kathryn forfeited on leaving her previous employer had a combined face value of £9.1 million (based on the share
price at the time of valuing the forfeited stock) and comprised a number of time-vesting shares vesting on 1 July 2016 and a number of
performance shares vesting on 1 January 2017, 1 July 2017 and 1 July 2018. The fair value of awards was estimated at £3.9 million.
Replacement awards in Diageo shares were delivered in a mixture of time-vesting and performance-based restricted shares with vesting
staggered over a three-year period, to take account of the vesting schedule of the forfeited stock and to ensure appropriate retention value
for the company. The face value of replacement awards was £6.3 million and the fair value was £3.9 million on grant.
As was disclosed to the market at the time, Kathryn Mikells was awarded:
• 43,868 ordinary shares, which will vest on 9 May 2017, subject to continuing employment;
• 43,868 ordinary shares, which will vest on 9 November 2018, subject to continuing employment; and
• 246,300 ordinary shares, which will vest on 9 November 2018, subject to the achievement of performance conditions based on net sales
growth, cumulative free cash flow and relative total shareholder return over the three-year period ending 30 June 2018 (the same
performance conditions and targets that apply to performance share awards granted in September 2015 under the DLTIP. The share price
on award, being the average closing price of an ordinary share over the three dealing days prior to the date of grant, was 1892 pence and
the face value noted above is based on this price.
Pension and benefits in the year ended 30 June 2016

Benefits
Benefits provisions for the Executive Directors continue to be in line with the information set out in the future policy table.
Pension arrangements (audited)

Ivan Menezes, Kathryn Mikells and Deirdre Mahlan are members of the Diageo North America Inc. Supplemental Executive Retirement Plan
(SERP) with an accrual rate of 40%, 20% and 35% of base salary, respectively during the year ended 30 June 2016. On his request, the accrual
rate for Ivan Menezes was reduced from 40% to 30% of salary, effective from 1 July 2016. There will be no compensatory payment or benefit
in exchange for this reduction in contribution.
The SERP is an unfunded, non-qualified supplemental retirement programme. Under the plan, accrued company contributions are subject Additional information for shareholders
to quarterly interest credits. Under the rules of the SERP, employees can withdraw the balance of the plan in the form of five equal annual
instalments or a lump sum upon reaching age 55 (Kathryn Mikells and Deirdre Mahlan) and after having left service with Diageo (within six
months of separation from service).
Ivan Menezes and Deirdre Mahlan participated in the US Cash Balance Plan and the Benefit Supplemental Plan (BSP) until August 2012 and
June 2010, respectively and have accrued benefits under both plans. The Cash Balance Plan is a qualified funded pension arrangement;
employer contributions are 10% of pay capped at the Internal Revenue Service (IRS) limit. The BSP is a non-qualified unfunded arrangement;
notional employer contributions are 10% of pay above the IRS limit. Interest (notional for the BSP) is credited quarterly on both plans.
Ivan Menezes was also a member of the Diageo Pension Scheme (DPS) in the United Kingdom between 1 February 1997 and
30 November 1999. The accrual of pensionable service ceased in 1999 but the linkage to salary remained until January 2012. Under the
Rules of the Scheme, this benefit is payable unreduced from age 60.
Upon death in service, a life insurance benefit of $3 million is payable to Ivan Menezes and a lump sum of four times base salary is payable
to Kathryn Mikells and Deirdre Mahlan.
The table below shows the pension benefits accrued by each Director to date. Note that the accrued UK benefits for Ivan Menezes are annual
pension amounts, whereas the accrued US benefits for Ivan Menezes, Kathryn Mikells and Deirdre Mahlan are one-off cash balance amounts.
30 June 2016 30 June 2015
UK pension UK pension
Executive Director £’000 p.a. US benefit £’000 £’000 p.a. US benefit £’000
Ivan Menezes(i) 69 5,588 69 4,218
Kathryn Mikells (ii)
Nil 92 n/a n/a
Deirdre Mahlan(iii) Nil 1,808 Nil 1,239
(i) Ivan Menezes’ US benefits are higher at 30 June 2016 than at 30 June 2015 by £1,370k:
(a) £486k of which is due to pension benefits earned over the year (all of which is over and above the increase due to inflation) – as reported in the single figure of remuneration,
see page 74;
(b) £61k of which is due to interest earned on his deferred US benefits over the year; and
(c) £823k of which is due to exchange rate movements over the year.
(ii) Kathryn Mikells’ US benefits are higher at 30 June 2016 than on her appointment date on 9 November 2015 by £92k:
(a) £83k of which is due to pension benefits earned over the year (all of which is over and above the increase due to inflation) – as reported in the single figure of remuneration,
see page 74; and
(b) £9k of which is due to exchange rate movements over the year.
(iii) Deirdre Mahlan’s US benefits are higher at 30 June 2016 than at 30 June 2015 by £569k:
(a) £296k of which is due to pension benefits earned over the year (all of which is over and above the increase due to inflation) – which equates to £105k pro-rated for the period
1 July 2015 – 9 November 2015 when she was a Director, as reported in the single figure of remuneration, see page 74;
(b) £14k of which is due to interest earned on her deferred US benefits over the year; and
(c) £259k of which is due to exchange rate movements over the year.
The Normal Retirement Age applicable to each Director’s benefits depends on the pension scheme, as outlined below.
UK benefits US benefits US benefits US benefits
Executive Director (DPS) (Cash balance) (BSP) (SERP)
6 months after age of 6 months after age of
Ivan Menezes(i) 60 65 leaving service leaving service
6 months after age of leaving
Kathryn Mikells n/a n/a n/a service, or age 55 if later
6 months after age of 6 months after age of leaving
Deirdre Mahlan n/a 65 leaving service service, or age 55 if later
(i) Ivan Menezes is able to take his UK pension benefits from age 58 without consent, and his benefits would not be subject to any actuarial reduction in respect of early payment.
However, this is a discretionary policy Diageo offers that is not set out in the DPS Scheme Rules.
Performance graph and table

The graph below shows the total shareholder return for Diageo and the FTSE100 Index since 30 June 2009 and demonstrates the relationship
between pay and performance for the Chief Executive, using current and previously published single total remuneration figures. The FTSE100
Index has been chosen because it is a widely recognised performance benchmark for large companies in the United Kingdom.
Total shareholder return – Diageo Chief Executive

value of hypothetical FTSE100 total remuneration
£100 holding Chief Executive total remuneration £ million
£300 30
£250 25
£200 20
£150 15
£100 10
£50 5
0 0
June 2009 June 2010 June 2011 June 2012 June 2013 June 2014 June 2015 June 2016
Paul S Walsh Paul S Walsh Paul S Walsh Paul S Walsh Ivan Menezes(i) Ivan Menezes(i) Ivan Menezes(i)
£’000 £’000 £’000 £’000 £’000 £’000 £’000
Chief Executive total remuneration
(includes legacy LTIP awards) 3,231 4,449 11,746 15,557 7,312 3,792 4,440
Annual incentive
(% maximum opportunity) 86% 77% 74% 51% 9% 28% 65%
LT – SESOP
LTI – PSP
(i) To enable comparison Ivan Menezes’ single total figure of remuneration has been converted into sterling using the cumulative average weighted exchange rate for the
relevant financial year.
Percentage change in remuneration of the director undertaking the role of Chief Executive
Strategic report
The table below shows a comparison of the percentage change in the Chief Executive’s remuneration to the average percentage change in
remuneration for the UK and US population from 2015 to 2016. The chosen population represents the most appropriate comparator group for
the Chief Executive, as the Committee considers salary increase budgets in these countries when reviewing Executive Directors’ base salaries.
Furthermore, the majority of Executive Committee members as well as the Executive Directors are on UK or US reward packages.
Taxable
Salary benefits Bonus
% change % change % change
Chief Executive percentage change from 2015 to 2016 0% (53%) 134%
Average % change for the UK and US workforce from 2015 to 2016 3% 0% 101%
The percentage change for the Chief Executive is based on the remuneration of Ivan Menezes from 2015 to 2016. Taxable benefits in 2015
included one-off relocation payments.
UK salary, benefits and bonus data for both 2015 and 2016 have been converted into USD using the cumulative weighted average
exchange rate for the year ended 30 June 2016 of £1 = $1.48.
Governance
Directors’ shareholding requirements and share and other interests (audited)
The beneficial interests of the Directors in office at 30 June 2016 (and their connected persons) in the ordinary shares (or ordinary share
equivalents) of the company are shown in the table below.
Ordinary shares or equivalent(i)
30 June 2016 30 June 2015
(or date of (or date of Shareholding Shareholding at
departure, appointment, requirement 14 July 2016 Shareholding
14 July 2016 if earlier) if later) (% salary)(ii) (% salary)(ii) requirement met
Chairman
Dr Franz B Humer 67,699 67,316 60,097 – – –
Executive Directors
Ivan Menezes(iii) 864,714 864,714 749,518 300% 1552% Yes
Kathryn Mikells(iii) (vi) 13,589 13,580 – 250% 39% No
Deirdre Mahlan(iii) 308,447 308,447 281,153 250% 777% Yes
Non-Executive Directors
Peggy B Bruzelius 5,000 5,000 5,000 – – –
Laurence M Danon (iv)
– 5,000 5,000 – – –
Lord Davies of Abersoch 5,052 5,052 5,052 – – –
Betsy D Holden(iii) 17,400 17,400 17,400 – – –
Ho KwonPing 4,353 4,353 4,223 – – –
Philip G Scott 10,000 10,000 10,000 – – –
Nicola S Mendelsohn 5,000 5,000 5,000 – – –
Alan JH Stewart 2,560 2,560 1,500 – – –
Emma Walmsley(v) 5,094 5,094 – – – –
Notes
(i) Each person listed beneficially owns less than one percent of Diageo’s ordinary shares. Ordinary shares held by Directors have the same voting rights as all other ordinary shares.
(ii) Both the shareholding requirement and shareholding at 14 July 2016 are expressed as a percentage of base salary earned in the year ended 30 June 2016 and calculated using
an average share price for the year ending 30 June 2016 of 1843.5 pence.
(iii) Ivan Menezes, Deirdre Mahlan, Kathryn Mikells and Betsy D Holden 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.
(iv) Laurence M Danon ceased to be a Non-Executive Director on 23 September 2015 and therefore her shareholding is not disclosed at 14 July 2016. Additional information for shareholders
(v) Emma Walmsley was appointed to the Board on 1 January 2016.
(vi) Kathryn Mikells has five years from the date of her appointment, that is, until 9 November 2020, to build up the required shareholding in Diageo shares.
Outstanding share plan interests (audited)

Number Number Total
Share of shares/ Dividends of shares/ number
price on options at awarded options at of shares/
Date of Performance Date of Share date of Exercise 30 June Vested/ and 30 June options in
Plan name award period vesting type grant price 2015(i) Granted exercised released Lapsed 2016 Ords(ii)
Ivan Menezes
SESOP(iii) Sep 2010 2010–2013 2013 ADR $67.84 55,512 55,512
SESOP(iii) Sep 2011 2011–2014 2014 ADR $76.70 36,587 36,587
SESOP Oct 2012 2012–2015 2015 ADR $112.72 46,575 46,575 –
Total number of vested but unexercised share options 368,396
SESOP(v) Sep 2013 2013–2016 2016 ADR $123.27 46,239 46,239
DLTIP – share options(vi) Sep 2014 2014–2017 2017 ADR $117.55 45,447 45,447
DLTIP – share options Sep 2015 2015–2018 2018 ADR $104.93 49,825 49,825
Total number of unvested share options subject to performance 566,044
DIP(iv) Sep 2011 2011–2014 2014–2015 ADR $74.11 21,309 21,309 –
DIP(iv) Mar 2012 2012–2019 2016–2019 ADR $96.44 58,571 4,880 9,763 43,928
PSP Oct 2012 2012–2015 2015 ADR $113.62 54,927 18,309 1,853 36,618 –
PSP(v) Sep 2013 2013–2016 2016 ADR $123.08 47,484 47,484
DLTIP – performance
shares(vi) Sep 2014 2014–2017 2017 ADR $115.80 45,447 45,447
DLTIP – performance shares Sep 2015 2015–2018 2018 ADR $104.30 49,825 49,825
Total number of unvested shares subject to performance 746,736
DIP(iv) Mar 2012 2012–2019 2016–2019 ADR $96.44 58,571 14,642 43,929
Total number of unvested shares not subject to performance 175,716
Deirdre Mahlan (viii)
SESOP(iii) Sep 2009 2009–2012 2012 ADR $63.13 20,790 20,790

SESOP Sep 2010 2010–2013 2013 Ord 1080p 199,652 199,652
SESOP Sep 2011 2011–2014 2014 Ord 1232p 135,069 135,069
SESOP Oct 2012 2012–2015 2015 Ord 1743p 146,299 146,299 –
Total number of vested but unexercised share options 417,881
SESOP(v) Sep 2013 2013–2016 2016 Ord 1983p 135,022 135,022
DLTIP – share options(vi) Sep 2014 2014–2017 2017 Ord 1796p 140,590 140,590
DLTIP – share options Sep 2015 2015–2018 2018 Ord 1709p 140,515 140,515
Total number of unvested share options subject to performance 416,127
PSP Oct 2012 2012–2015 2015 Ord 1772p 134,653 44,884 4,380 89,769 –
PSP(v) Sep 2013 2013–2016 2016 Ord 1978p 110,241 110,241
DLTIP – performance
shares(vi) Sep 2014 2014–2017 2017 Ord 1779p 140,590 140,590
DLTIP – performance shares Sep 2015 2015–2018 2018 Ord 1714p 140,515 140,515
Kathryn Mikells
DBOP – performance
shares(vii) Nov 2015 2015–2018 2018 Ord 1866p 246,300 246,300
DBOP – restricted shares(vii) Nov 2015 2015–2017 2017 Ord 1866p 43,868 43,868
DBOP – restricted shares(vii) Nov 2015 2015–2018 2018 Ord 1866p 43,868 43,868
Total number of unvested shares not subject to performance 87,736
(i) 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 ten years after the date of grant.
(ii) 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.
(iii) Shares/options granted prior to the Executive’s appointment to the Board.
(iv) Ivan Menezes retains interests in awards that were granted to him prior to joining the Board under ‘below-board’ plans (Discretionary Incentive Plan), amounting to a total of
188,172 ADRs, granted in 2011 and 2012. 50% of the initial 2011 award of 71,030 ADRs lapsed in September 2014, as disclosed in the 2014 remuneration report. Of the remainder,
40% vested in September 2014, and the remaining portion vested in September 2015. The 2012 award is subject to performance conditions and continuing employment.
66.67% of the first tranche vested in March 2016 and 66.7% of the second tranche is due to vest in March 2017, with the remaining tranches vesting in March 2018 and March 2019.
(v) Awards made under the PSP and SESOP in September 2013 and due to vest in September 2016 are included here as unvested share awards subject to performance conditions,
although the awards have also been included under long-term incentives in the single figure of total remuneration on page 74, since the performance period ended during the
year ended 30 June 2016.
(vi) Details of the performance conditions attached to PSP and SESOP awards granted in 2014 were disclosed in Diageo’s 2015 Annual Report.
(vii) Replacement shares awarded to Kathryn Mikells on her appointment as Chief Financial Officer on 9 November 2015, in recognition of share awards she forfeited from her
previous employer. These awards were made under the Diageo Buy Out Plan (DBOP).
(viii) Awards granted to Deirdre Mahlan after she stepped down from the Board on 9 November 2015 have not been disclosed as she was no longer an Executive Director.
Payments to former directors (audited)
Strategic report
There were no payments to former directors above the de minimis level of £3k in the year ended 30 June 2016. This does not apply to Deirdre
Mahlan, who stepped down from the Board on 9 November 2015.
Payments for loss of office (audited)

There were no payments for loss of office to Executive Directors in relation to the year ended 30 June 2016.
Non-Executive Directors’ fees

The Chairman’s fee was reviewed in December 2015 and increased from £500,000 to £600,000 per annum, effective from 1 January 2016,
following five successive years of no increases. The Chairman’s fee is appropriately positioned against our comparator group of FTSE30
companies excluding financial services. The next review is scheduled for December 2017.
Following a comprehensive review of competitive market data, the Board also reviewed the fees for Non-Executive Directors and increased
the basic fee from £84,000 to £87,000 per annum and the Senior Non-Executive Director fee from £20,000 to £25,000 per annum, also effective
from 1 January 2016. There are no changes to the additional fees for the Chairman of the Audit Committee and the Remuneration Committtee.
January January
2016 2015
Per annum fees £’000 £’000
Governance
Chairman of the Board 600 500
Base fee 87 84
Senior Non-Executive Director 25 20
Chairman of the Audit Committee 30 30
Chairman of the Remuneration Committee 25 25
Non-Executive Directors’ remuneration for the year ended 30 June 2016 (audited)
Fees Taxable benefits(i) Total

£’000 £’000 £’000
2016 2015 2016 2015 2016 2015
Chairman
Dr Franz B Humer(ii) 550 500 6 12 556 512
Peggy B Bruzelius 86 84 6 13 92 97
Laurence M Danon(iii) 21 84 1 6 22 90
Lord Davies of Abersoch 133 129 3 3 136 132
Betsy D Holden 86 84 10 35 96 119
Ho KwonPing 86 84 1 1 87 85
Philip G Scott 116 114 12 5 128 119
Nicola S Mendelsohn 86 70 1 1 87 71
Alan JH Stewart 86 70 1 1 87 71
Emma Walmsley(iv) 44 – 1 – 45 –
(i) Other benefits include a contracted car service, product allowance and expense reimbursements relating to travel, accommodation and subsistence in connection with the
attendance of 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 the grossed-up cost of UK tax paid by the company on behalf of the directors. Non-taxable expense reimbursements have not been included in the single figure
of remuneration table above.
(ii) As in the previous year, £96,000 of Dr Franz B Humer’s net remuneration in the year ended 30 June 2016 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.
(iii) Laurence M Danon ceased to be a Non-Executive Director on 23 September 2015.
(iv) Emma Walmsley was appointed to the Board on 1 January 2016.
External appointments held by the Executive Directors • Determining arrangements in relation to termination of
Executive Directors may accept external appointments as Non- employment of the Executive Directors and other designated
Executive Directors of other companies and retain any related senior executives; and
fees paid to them, subject to the specific approval of the Board • Making recommendations to the Board concerning the
in each case. introduction of any new share incentive plans which require
Ivan Menezes – During the year ended 30 June 2016, Ivan approval by shareholders.
Menezes served as a Non-Executive Director of Coach Inc. and earned
Full terms of reference for the Committee are available at
fees of $75,000, which he retained. In line with the Coach Inc. policy
www.diageo.com and on request from the Company Secretary.
for outside directors, Ivan Menezes is eligible to be granted share
options and restricted share units (RSUs). During the year ended External advisors
30 June 2016, he was granted 11,734 options at an option price of During the year ended 30 June 2016, the Remuneration Committee
$32.28 and 2,367 RSUs (including dividends received) at a fair market received advice from Kepler (a brand of Mercer), appointed by the
value of $32.28 per share. Committee in December 2013 following a tendering process, who
Kathryn Mikells – During the year ended 30 June 2016, Kathryn provided independent advice on remuneration best practice and
Mikells served as a Non-Executive Director of Hartford Financial senior executive remuneration.
Services Group Inc. and earned fees of $100,000 for the full year, Kepler is a signatory to, and abides by, the Remuneration
which were deferred into equity. Consultants Group Code of Conduct. Further details can be found at
Deirdre Mahlan – During the year ended 30 June 2016, Deirdre www.remunerationconsultantsgroup.com. Kepler’s parent company,
Mahlan served as a Non-Executive Director of Experian plc and Mercer, provides unrelated services to the company in the areas of
earned fees of €68,864, which she retained. all-employee reward and retirement benefits. The Remuneration
Committee is satisfied that the advice it receives from Kepler is
Relative importance of spend on pay
independent. During the year, Kepler supported the Committee in
The graph below illustrates the relative importance of spend on
preparing this Directors’ remuneration report, provided remuneration
pay (total remuneration of all group employees) compared with
benchmarking survey data to support the salary review for the
distributions to shareholders, and the percentage change from
Executive Committee, provided advice on the design of the
the year ended 30 June 2015 to the year ended 30 June 2016.
long-term incentives, and calculated the total shareholder return
Distributions to shareholders are total dividends. The Committee
of Diageo and its peer companies for the 2012 and 2013 PSP awards
considers that there are no other significant distributions or
and provided periodic updates on all outstanding performance
payments of profit or cash flow.
cycles. The fees paid to Kepler in relation to advice provided to the
Committee were £137,935 and are determined on a time and
Relative importance of spend on pay – percentage change expenses basis.
During the year, Linklaters provided advice on the Directors’
Staff pay 1,180 1,236 4.7%
remuneration report. Fees paid in relation to this advice, again on a
Distributions time and expenses basis, were £6,000. Linklaters also provide other
1,341 1,443 7.6%
to shareholders legal advice from time to time on certain corporate matters.
£m 0 500 1,000 1,500 2,000 2,500 3,000 The Committee is satisfied that the Kepler and Linklaters
engagement partners and teams that provide remuneration advice
2015 to the Committee do not have connections with Diageo that may
2016
impair their independence. The Committee reviewed the potential
for conflicts of interest and judged that there were appropriate
Remuneration committee safeguards against such conflicts.
The Remuneration Committee consists of the following independent Clifford Chance provided advice on the operation of share plans
Non-Executive Directors: Peggy B Bruzelius, Lord Davies of Abersoch, during the year.
Betsy D Holden, Ho KwonPing, Philip G Scott, Nicola S Mendelsohn,
Alan JH Stewart and Emma Walmsley. Lord Davies is the Chairman of Statement of voting
the Remuneration Committee. The Chairman of the Board and the The following table summarises the details of votes cast in respect
Chief Executive may, by invitation, attend Remuneration Committee of the resolutions on the Directors’ remuneration policy at the 2014
meetings except when their own remuneration is discussed. Diageo’s AGM and annual report on remuneration at the 2015 AGM.
Global Human Resources Director and Capability, Performance and Total
Reward Director are also invited from time to time by the For Against votes cast Abstentions
Remuneration Committee to provide their views and advice. The Directors’
Global Human Resources Director is not present when her own remuneration policy
remuneration is discussed. The Chief Financial Officer may also attend Total number of votes 1,663,866,061 43,275,688 1,707,141,749 18,288,488
to provide performance context to the Committee during its Percentage of votes cast 97.47% 2.53% 100% n/a
discussions about target setting. Information on meetings held and
Annual report on
director attendance is disclosed in the corporate governance report. remuneration
Total number of votes 1,767,690,112 64,973,516 1,832,663,628 35,221,124
The Remuneration Committee’s principal responsibilities are:
• Making recommendations to the Board on remuneration policy as Percentage of votes cast 96.45% 3.55% 100% n/a
applied to the Executive Directors and the Executive Committee;
• Setting, reviewing and approving individual remuneration The Committee was pleased with the level of support shown for
arrangements for the Chairman of the Board, Executive Directors the remuneration policy and annual report on remuneration and
and Executive Committee members including terms and appreciated the active participation of shareholders and their
conditions of employment; representative advisory bodies in consulting on executive
remuneration matters.
ADDITIONAL INFORMATION Statutory and audit requirements
Strategic report
This report was approved by a duly authorised Committee of the
Board of Directors, on 27 July 2016 and was signed on its behalf by
Emoluments and share interests of senior management Lord Davies of Abersoch who is senior Non-Executive Director and
The total emoluments for the year ended 30 June 2016 of the Chairman of the Remuneration Committee.
Executive Directors, the Executive Committee members and the The Board has followed the principles of good governance as set
Company Secretary (together, the senior management) of Diageo out in the UK Corporate Governance Code (with the exception that
comprising base salary, annual incentive plan, share incentive plan, the directors were unable to attend the 2015 AGM) and complied
termination payments and other benefits were £20.5 million with the regulations contained in the Schedule 8 of the Large and
(2015 – £14.0 million). Medium-sized Companies and Groups (Accounts and Reports)
The aggregate amount of gains made by the senior management (Amendment) Regulations 2013, the Listing Rules of the Financial
from the exercise of share options and from the vesting of awards Conduct Authority and the relevant schedules of the Companies
during the year was £9.5 million. In addition, they were granted Act 2006.
968,293 performance-based share options under the DLTIP during The Companies Act 2006 and the Listing Rules require the
the year at a weighted average share price of 1709 pence, exercisable Company’s auditor to report on the audited information in their
by 2025 and 43,444 options not subject to performance under the report and to state that this section has been properly prepared
DLTIP, which will vest in three years. In addition they were granted in accordance with these regulations.
Governance
212 options over ordinary shares under the UK savings-related share PWC LLP has audited the report to the extent required by the
options scheme (SAYE). They were also awarded 901,720 performance Regulations, being the sections headed Single total figure of
shares under the DLTIP in September 2015, which will vest in three remuneration for Executive Directors (and notes), Annual incentive
years subject to the performance test described in the section on plan (AIP), Long-term incentive plans (LTIPs), Pension arrangements,
DLTIP awards made during the year ended 30 June 2016, and 4,250 Directors’ shareholding requirements and share and other interests,
shares not subject to performance under the DLTIP. They were also Outstanding share plan interests, Non-Executive Directors’
awarded 146,904 shares under the DIP, which will vest in September remuneration and Key management personnel related party
2018, subject to the performance conditions being met. This excludes transactions.
the replacement share awards made to Kathryn Mikells on The annual report on remuneration is subject to shareholder
9 November 2015. approval at the AGM on 21 September 2016; the Directors’
remuneration policy was approved by shareholders at the 2014 AGM.
Senior management options over ordinary shares
Terms defined in this remuneration report are used solely herein.
At 14 July 2016, the senior management had an aggregate beneficial
interest in 1,743,277 ordinary shares in the company and in the
following options over ordinary shares in the company:
Weighted
average
Number exercise Option
of options price period
Ivan Menezes 934,440 1535p 2013 – 2025
Deirdre Mahlan 834,008 1488p 2012 – 2025
Other(i) 1,862,324 1731p 2011 – 2025
3,630,772
(i) Other members of the Executive Committee and the Company Secretary.
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 Additional information for shareholders
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 2016.
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.
86 DIAGEO Annual Report 2016 Directors’ report
DIRECTORS’ REPORT Auditor

The auditor, PricewaterhouseCoopers LLP, is willing to continue in
office and a resolution for its re-appointment as auditor of the
The Directors have pleasure in submitting their Annual Report for the company will be submitted to the AGM.
year ended 30 June 2016.
Disclosure of information to the auditor
Annual General Meeting The Directors who held office at the date of approval of this Directors’
The AGM will be held at The Mermaid Conference & Events Centre, report confirm that, so far as they are each aware, there is no relevant
Puddle Dock, Blackfriars, London EC4V 3DB at 2.30pm on Wednesday, audit information of which the company’s auditor is unaware; and
21 September 2016. each Director has taken all reasonable steps to ascertain any relevant
audit information and to ensure that the company’s auditor is aware
Directors of that information.
The Directors of the company who served during the year are shown
in the section ‘Board of Directors and Company Secretary’ and Corporate governance statement
‘Executive Committee’ above. The corporate governance statement, prepared in accordance with
In accordance with the UK Corporate Governance Code all the rule 7.2 of the Financial Conduct Authority’s Disclosure Guidance and
Directors will retire by rotation at the AGM and offer themselves for Transparency Rules, comprises the following sections of the Annual
re-election. The Non-Executive Directors proposed for re-election do Report: the ’Corporate governance report’, ‘the Report of the Audit
not have service contracts. Emma Walmsley and Javier Ferrán have Committee’ and the ’Additional information for shareholders’.
been appointed, as Non-Executive Directors, with effect from
1 January 2016 and 22 July 2016 respectively and will offer themselves Significant agreements – change of control
for election at the AGM. Javier Ferrán will be appointed Chairman on The following significant agreements contain certain termination and
1 January 2017 on the retirement of Dr Franz B Humer. other rights for Diageo’s counterparties upon a change of control of
Further details of Directors’ contracts, remuneration and their the company.
interests in the shares of the company at 30 June 2016 are given in Under the agreement governing the company’s 34% investment
the Directors’ remuneration report. in Moët Hennessy SNC (MH) and Moët Hennessy International SAS
The Directors’ powers are determined by UK legislation and (MHI), if a competitor (as defined therein) directly or indirectly takes
Diageo’s articles of association. The Directors may exercise all the control of the company (which, for these purposes, would occur if
company’s powers provided that Diageo’s articles of association or such competitor acquired more than 34% of the voting rights or
applicable legislation do not stipulate that any powers must be equity interests in the company), LVMH Moët Hennessy – Louis
exercised by the members. Vuitton SA (LVMH) may require the company to sell its shares in MH
and MHI to LVMH.
The master agreement governing the operation of the group’s
regional joint ventures with LVMH states that upon a change of
control of the company (being, for these purposes, the acquisition by
a third party of 30% or more of the issued share capital having voting
rights in the company), LVMH may 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 joint
venture entity to be wound up.
Directors’ report DIAGEO Annual Report 2016 87
Other information
Strategic report
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
Amendment of articles of association Additional information for shareholders – Articles of association
Contracts of significance Not applicable
Details of long-term incentive schemes Directors' remuneration report
Directors – appointment and powers Additional information for shareholders – Articles of association – Directors
Directors’ indemnities and compensation Directors’ remuneration report – Directors’ remuneration policy and Additional information; Financial
statements – note 20 Related party transactions
Dividends Financial statements – Unaudited financial information and group financial review
Employment policies Strategic report – How we will deliver our Performance Ambition; Strategic report – How we protect our
business: risk management and principal risks; Strategic report – Sustainability and Responsibility Review
Events since 30 June 2016 None
Governance
Financial risk management Financial statements – note 15 Financial instruments and risk management
Future developments Chairman’s statement; Chief Executive’s Statement; Market dynamics
Greenhouse gas emissions Strategic report – Sustainability and Responsibility Review – Reducing our environmental impact;
Additional information for shareholders – External limited assurance of selected sustainability &
responsibility 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 information
Purchase of own shares Additional information for shareholders – Repurchase of shares; Financial statements – note 17 Equity
Research and development Financial statements – note 3 Operating costs
Restrictions on transfer of securities Additional information for shareholders – Restrictions on transfer of shares
Review of the business and principal risks
and uncertainties Chief Executive’s statement; Strategic report: How we protect our business: risk management and principal risks
Share capital – structure, voting and other rights Additional information for shareholders – Share capital and Articles of association; Financial statements –
note 17 Equity
Share capital – employee share plan voting rights Financial statements – note 17 Equity
Shareholdings in the company Additional information for shareholders – Share capital
Shareholder waivers of dividends Note 17 Equity
Shareholder waivers of future dividends Note 17 Equity
Sustainability and responsibility Strategic report – How we will deliver our Performance Ambition: Sustainability & responsibility; Strategic
report – How we protect our business: risk management and principal risks; Strategic report – Sustainability
and Responsibility Review
Waiver of emoluments by a director Not applicable
Waiver of future emoluments by a director Not applicable Additional information for shareholders
The Directors’ report of Diageo plc for the year ended 30 June 2016 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 was approved by a duly appointed and authorised committee of the Board of Directors on 27 July 2016 and signed
on its behalf by David Harlock, the Company Secretary.
88 DIAGEO Annual Report 2016 Financial statements of the group: Introduction and contents
FINANCIAL
STATEMENTS:
Introduction
and contents
Introduction Contents
The financial statements of the group are prepared in accordance Independent auditor’s report to the
with International Financial Reporting Standards (IFRS) as adopted members of Diageo plc only 89
for use in the European Union (EU) and as issued by the Primary statements
International Accounting Standards Board (IASB). Consolidated income statement 95
Consolidated statement of comprehensive income 96
The financial statements of Diageo plc (the company) are prepared
Consolidated balance sheet 97
in accordance with the Companies Act 2006 and in accordance
Consolidated statement of changes in equity 98
with Financial Reporting Standard 101 Reduced Disclosure
Consolidated statement of cash flows 99
Framework (FRS 101). The company has applied IFRS 1 for the first
time for the year ended 30 June 2016 and has restated its Accounting information and policies 100
comparative information accordingly. 1. Accounting information and policies 100
Results for the year 102
The financial statements also include ’Unaudited Financial 2. Segmental information 102
Information’ which is not required by the relevant accounting 3. Operating costs 105
standards or other regulations but management believes this 4. Exceptional items 106
section provides important additional information. 5. Finance income and charges 108
6. Investments in associates and joint ventures 109
7. Taxation 110
8. Discontinued operations 112
Operating assets and liabilities 113
9. Acquisition and sale of businesses and purchase
of non-controlling interests 113
10. Intangible assets 117
11. Property, plant and equipment 119
12. Other investments 121
13. Post employment benefits 121
14. Working capital 125
Risk management and capital structure 127
15. Financial instruments and risk management 127
16. Net borrowings 133
17. Equity 134
Other financial information 137
18. Contingent liabilities and legal proceedings 137
19. Commitments 141
20. Related party transactions 141
21. Principal group companies 142
Financial statements of the company 143
Unaudited financial information 152
Financial statements of the group: Independent auditor’s report DIAGEO Annual Report 2016 89
INDEPENDENT AUDITOR’S Our audit approach
Strategic report
Overview
REPORT TO THE MEMBERS Materiality
• Overall group materiality: £140 million, which represents 5% of
OF DIAGEO plc profit before taxation and exceptional items (as defined in note 4
to the group financial statements).
Report on the financial statements
Our opinion Audit scope
In our opinion: • We conducted full scope audit work in ten countries in which the
• Diageo plc’s group financial statements and company financial group has significant operations. Our work also covered the four
statements (the financial statements) give a true and fair view group shared service centres.
of the state of the group’s and of the company’s affairs as at • In addition, we performed the audit of specific balances and
30 June 2016 and of the group’s profit and cash flows for the year transactions in six countries, as well as over Moët Hennessy, the
then ended; group’s principal associate.
• the group financial statements have been properly prepared • During the year, the group engagement team visited all countries
in accordance with International Financial Reporting Standards where full scope audits were performed, all shared service centres
(IFRSs) as adopted by the European Union;
Governance
and two of the countries where audits of specific balances and
• the company financial statements have been properly prepared in transactions took place. They also visited the Moët Hennessy
accordance with United Kingdom Generally Accepted Accounting audit team.
Practice; and
• the financial statements have been prepared in accordance with Areas of focus
the requirements of the Companies Act 2006 and, as regards the • Carrying value of goodwill and intangible assets.
group financial statements, Article 4 of the IAS Regulation. • Taxation matters.
• Presentation of exceptional items, including business disposals.
Separate opinion in relation to IFRSs as issued by the IASB
As explained in note 1 to the financial statements, the group, in • Provisions and contingent liabilities.
addition to applying IFRSs as adopted by the European Union, has • Post-employment benefit obligations.
also applied IFRSs as issued by the International Accounting
Standards Board (IASB). The scope of our audit and our areas of focus
In our opinion, the group financial statements comply with IFRSs We conducted our audit in accordance with International Standards
as issued by the IASB. on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing the
risks of material misstatement in the financial statements. In particular,
What we have audited
The financial statements, included within the Annual Report, we looked at where the directors made subjective judgements, for
comprise: example in respect of significant accounting estimates that involved
• the consolidated balance sheet as at 30 June 2016; making assumptions and considering future events that are
inherently uncertain. As in all of our audits we also addressed the risk
• the company balance sheet as at 30 June 2016;
of management override of internal controls, including evaluating
• the consolidated income statement and the consolidated whether there was evidence of bias by the directors that represented
statement of comprehensive income for the year then ended; a risk of material misstatement due to fraud.
• the consolidated statement of cash flows for the year then ended; The risks of material misstatement that had the greatest effect on
• the consolidated statement of changes in equity for the year our audit, including the allocation of our resources and effort, are
then ended; identified as “areas of focus” in the table below. We have also set out
how we tailored our audit to address these specific areas in order to
• the statement of changes in equity for the company for the year
provide an opinion on the financial statements as a whole, and any
then ended; and
comments we make on the results of our procedures should be
• the notes to the financial statements, which include a summary of read in this context. This is not a complete list of all risks identified
significant accounting policies and other explanatory information. by our audit.
Certain required disclosures have been presented elsewhere in the
Annual Report, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and are
identified as audited.
The financial reporting framework that has been applied in the
preparation of the group financial statements is IFRSs as adopted by
the European Union, and applicable law. The financial reporting
framework that has been applied in the preparation of the company
financial statements is United Kingdom Accounting Standards,
comprising FRS 101 Reduced Disclosure Framework, and applicable
law (United Kingdom Generally Accepted Accounting Practice).
90 DIAGEO Annual Report 2016 Financial statements of the group: Independent auditor’s report
Area of focus How our audit addressed the area of focus

Carrying value of goodwill and intangible assets We evaluated the appropriateness of management’s identification
Refer to the Report of the Audit Committee, note 4 – Exceptional items, of the group’s CGUs and tested the operation of the group’s controls
and note 10 – Intangible assets. over the impairment assessment process, which we found to be
The group has goodwill of £2,699 million, indefinite-lived satisfactory for the purposes of our audit.
brand intangibles of £8,079 million and other intangible assets Our audit procedures included challenging management on the
of £1,592 million as at 30 June 2016, contained within 21 cash appropriateness of the impairment model and reasonableness of
generating units (‘CGUs’). the assumptions used, with particular attention paid to Ypióca, USL,
Goodwill and indefinite-lived intangible assets must be tested Greater China and Meta, through performing the following:
for impairment on at least an annual basis. The determination of • benchmarking Diageo’s key market-related assumptions in the
recoverable amount, being the higher of value-in-use and fair value models, including discount rates, long term growth rates and
less costs to dispose, requires judgement on the part of foreign exchange rates, against external data, using our
management in both identifying and then valuing the relevant valuation expertise;
CGUs. Recoverable amounts are based on management’s view of • assessing the reliability of cash flow forecasts through a review of
variables and market conditions such as future price and volume actual past performance and comparison to previous forecasts;
growth rates, the timing of future operating expenditure, and the
• testing the mathematical accuracy and performing sensitivity
most appropriate discount and long term growth rates.
analyses of the models;
With challenging trading conditions in certain territories, the
group’s performance and prospects have been impacted. As a • understanding the commercial prospects of the assets, and where
result, impairment charges have been recognised in the year ended possible comparison of assumptions with external data sources;
30 June 2016. A pre-tax impairment charge of £118 million was and
recognised in respect of the Ypióca brand intangible and Paraguay, • for USL, assessing the reasonableness of assumptions compared
Uruguay and Brazil (‘PUB’) CGU goodwill. to the original fair value model and performance since acquisition.
In addition, CGUs containing the USL goodwill, Greater China We assessed the appropriateness and completeness of the related
goodwill and Meta brand have been determined by management disclosures in note 4 and note 10 of the group financial statements,
to be sensitive to reasonably possible changes in the assumptions including the sensitivities provided with respect to USL, Greater
used, which could result in the calculated recoverable amount being China and Meta, and considered these reasonable.
lower than the carrying value of the CGU. Additional sensitivity Based on our procedures, we noted no material exceptions
disclosures have been included in the group financial statements and considered management’s key assumptions to be within
in respect of these CGUs. reasonable ranges.
Taxation matters We evaluated the design and implementation of controls in respect

Refer to the Report of the Audit Committee, note 7 – Taxation, of identifying uncertain tax positions, which we found to be
and note 18 – Contingent liabilities and legal proceedings. satisfactory for the purposes of our audit. We also evaluated the
The group operates across a large number of jurisdictions and is related accounting policy for provisioning for tax exposure and
subject to periodic challenges by local tax authorities on a range of found it to be appropriate.
tax matters during the normal course of business, including transfer We used our tax specialists to gain an understanding of the
pricing, direct and indirect taxes, and transaction related tax matters. current status of tax assessments and investigations and to monitor
As at 30 June 2016, the group has current taxes payable of £340 developments in ongoing disputes. We read recent rulings and
million, deferred tax assets of £298 million and deferred tax liabilities correspondence with local tax authorities, as well as external advice
of £1,982 million. received by the group where relevant, to satisfy ourselves that the
Where the amount of tax payable is uncertain, the group tax provisions had been appropriately recorded or adjusted to reflect
establishes provisions based on management’s judgement of the the latest external developments.
probable amount of the liability. The group has also undertaken We challenged management’s key assumptions, in particular on
a number of disposal transactions during the year which has cases where there had been significant developments with tax
resulted in a net exceptional tax charge of £56 million. authorities, noting no significant deviations from our expectations.
We focused on the judgements made by management in We assessed the appropriateness of the related disclosures in
assessing the quantification and likelihood of potentially material note 7 and note 18 of the group financial statements, and
exposures and therefore the level of provision required. In particular considered these reasonable.
we focused on the impact of changes in local tax regulations and
ongoing inspections by local tax authorities, which could materially
impact the amounts recorded in the
group financial statements.
Strategic report
Presentation of exceptional items, including We evaluated the design and implementation of controls in respect
business disposals of exceptional items, which we found to be satisfactory for the
Refer to the Report of the Audit Committee and note 4 – purposes of our audit.
Exceptional items. We considered the judgements within management’s
In the past few years the group has had significant levels accounting papers for the business disposals and other one-off
of exceptional items that are disclosed separately within the transactions, and obtained corroborative evidence for the items
consolidated income statement and are excluded from presented within ‘exceptional items’. This included the timing of
management’s reporting of the underlying results of the business. recognition and nature of costs associated with the business
The nature of these exceptional items is explained within the disposals. We considered these reasonable.
group accounting policy and includes restructuring costs, gains We challenged management’s rationale for the designation
or losses arising on acquisitions or disposals, impairment charges of certain items as ‘exceptional’ and assessed such items against
or reversals, and costs resulting from non-recurring legal or the group’s accounting policy.
regulatory matters. For the disposal transactions, we read underlying contractual
This year the group has identified £167 million of net operating and other agreements and verified that the accounting papers, and
exceptional costs and £123 million of non-operating exceptional associated calculations prepared by management, reflected the
Governance
income before tax, which relate primarily to: substance of these. We also vouched the receipt of net proceeds
• impairment charges (£118 million); received, where applicable. No material exceptions were identified.
• the gain on sale of the group’s shareholdings in D&G (Jamaican We assessed the appropriateness and completeness of the
Red Stripe business) and GAPL (Singapore and Malaysia beer disclosures in note 4 and other related notes of the group financial
business) (£457 million); and statements, and checked that these reflected the output of
management’s accounting papers, noting no significant deviations
• the loss on sale of the group’s wine interests in the United States
from our expectations.
and UK (Percy Fox) (£191 million).
We also considered whether there were items that were recorded
Our specific area of focus was to assess whether the items identified within underlying profit that we determined to be ‘exceptional’ in
by management as exceptional met the definition of the group’s nature and should have been included within ‘exceptional items’.
accounting policy and have been treated consistently, as the No such material items were identified.
identification of such items requires judgement by management.
Consistency in the identification and presentation of these items is
important to ensure comparability of year-on-year reporting.
Provisions and contingent liabilities We evaluated the design and implementation of controls in respect
Refer to the Report of the Audit Committee, note 14(d) – Working capital of litigation and regulatory procedures, which we found
(provisions) and note 18 – Contingent liabilities and legal proceedings. to be satisfactory for the purposes of our audit.
The group faces a number of threatened and actual legal Our procedures included the following:
and regulatory cases. There is a high level of judgement required • where relevant, reading external legal advice obtained
in estimating the level of provisioning and/or the level of by management;
disclosure required. • discussing open matters and developments with the group
general counsel and regional general counsel;
• meeting with regional and local management and reading
subsequent correspondence;
• assessing and challenging management’s conclusions through
understanding precedents set in similar cases; and
• circularising relevant third party legal representatives and follow
up discussions, where appropriate, on certain material cases.
Based on the evidence obtained, whilst noting the inherent
uncertainty with such legal and regulatory matters, we determined
that the level of provisioning at 30 June 2016 to be appropriate.
We assessed the appropriateness of the related disclosures
in note 14(d) and note 18 of the group financial statements,
and believed these to be reasonable.

Post employment benefit obligations We evaluated the design and implementation of controls in respect
Refer to the Report of the Audit Committee, note 13 – post of post employment benefit obligations, which we found to be
employment benefits. satisfactory for the purposes of our audit.
The group has approximately 40 defined benefit post We used our actuarial specialists to assess whether the
employment plans. The total present value of obligations is assumptions used in calculating the liabilities for the United
£9,447 million at 30 June 2016, which is significant in the context Kingdom, Ireland and North America pension plans were reasonable,
of the overall balance sheet of the group. The group’s most by performing the following:
significant plans are in the United Kingdom, Ireland and • assessing whether salary increases and mortality rate assumptions,
North America. were consistent with the specifics of each plan and, where
The valuation of pension plan liabilities requires judgement applicable, with relevant national and industry benchmarks;
in determining appropriate assumptions such as salary increase, • verifying that the discount and inflation rates used were consistent
mortality rates, discount rates, inflation levels and the impact of any with our internally developed benchmarks and in line with other
changes in individual pension plans. Movements in these companies’ recent external reporting; and
assumptions can have a material impact on the determination
• reviewing the calculations prepared by external actuaries to assess
of the liability. Management uses external actuaries to assist
the consistency of the assumptions used.
in determining these assumptions.
Based on our procedures, we noted no exceptions and considered
management’s key assumptions to be within reasonable ranges.
How we tailored the audit scope Together, the central and component locations at which work was
We tailored the scope of our audit to ensure that we performed performed by the group engagement team and component auditors
enough work to be able to give an opinion on the financial accounted for 74% of consolidated net sales, 85% of the consolidated
statements as a whole, taking into account the geographic structure total assets, and 63% of the consolidated profit before tax and
of the group, the accounting processes and controls, and the industry exceptional items, with work performed by the group engagement
in which the group operates. team over exceptional items contributing a further 6% coverage over
The group operates as 21 geographically based markets across the consolidated profit before tax (total of 69%). At the group level,
five regions, and the supply and the corporate functions. These we also carried out analytical and other procedures on the reporting
markets report through a significant number of individual reporting components not covered by the procedures described above.
components, which are supported by the group’s four principal Where the work was performed by component auditors,
shared service centres in Hungary, Kenya, Colombia and the including by our shared service centre auditors, we determined the
Philippines. The outputs from these shared service centres are level of involvement we needed to have in the audit work at those
included in the financial information of the reporting components locations to be able to conclude whether sufficient appropriate audit
they service, and therefore are not separate reporting components. evidence had been obtained as a basis for our opinion on the group
In establishing the overall approach to the group audit, we financial statements as a whole. We issued formal, written
determined the type of work that needed to be performed at instructions to component auditors setting out the work to be
reporting components by us, as the group engagement team, or performed by each of them and maintained regular communication
component auditors from either other PwC network firms or throughout the audit cycle. These interactions included attending
non-PwC firms operating under our instruction. This included component clearance meetings and holding regular conference calls,
consideration of the procedures required to be performed by our as well as reviewing and assessing matters reported.
audit teams at the group’s shared service centres to support our Senior members of the group engagement team also visited all
component auditors. component locations in scope for an audit of their complete financial
We identified three reporting components which, in our view, information, as well as three of the shared centre locations and two
required an audit of their complete financial information, due to their of the countries where audits of specific balances and transactions
financial significance to the group. Those reporting components took place, and met with the Moët Hennessy audit team. These
were North America, USL and the supply operations in Scotland. visits included meetings with local management and with the
A further 13 reporting components had an audit of their complete component auditors, as well as certain operating site tours. The
financial information, either due to their size or their risk group engagement partners also attended the year-end clearance
characteristics, which included operating (six) and treasury (four) meetings for North America, USL and Scotland, and the group
reporting components. We audited specific balances and engagement team reviewed the audit working papers for
transactions at a further seven reporting components, including the these components.
financial information of Moët Hennessy, the group’s principal
associate, primarily to ensure appropriate audit coverage. The work Materiality
performed at each of the four shared services centres, including The scope of our audit was influenced by our application of
testing of transaction processing and controls, supported the materiality. We set certain quantitative thresholds for materiality.
financial information of the reporting components they serve. These, together with qualitative considerations, helped us to
Certain specific audit procedures over central corporate functions determine the scope of our audit and the nature, timing and extent
and areas of significant judgement, including goodwill and intangible of our audit procedures on the individual financial statement line
assets, taxation, and material provisions and contingent liabilities, items and disclosures and in evaluating the effect of misstatements,
were performed at the group’s head office. We also performed work both individually and on the financial statements as a whole.
centrally on systems and IT general controls, consolidation journals
and the disposal transactions undertaken by the group during
the year.
Based on our professional judgement, we determined materiality ISAs (UK & Ireland) reporting
Strategic report
for the financial statements as a whole as follows: Under ISAs (UK & Ireland) we are required to report to you if,
in our opinion:
Overall group materiality £140 million.
How we determined it 5 % of profit before taxation and • information in the Annual Report is: We have no
exceptional items (as defined in note 4 ––materially inconsistent with the information exceptions
to the group financial statements). in the audited financial statements; or to report.
––apparently materially incorrect based on, or
Rationale for We consider an adjusted measure to
materially inconsistent with, our knowledge of
benchmark applied be one of the principal considerations
the group and company acquired in the course
for the members of Diageo plc in
of performing our audit; or
assessing the recurring financial
––otherwise misleading.
performance of the group as it best
represents results from underlying • the statement given by the directors on page 61, in We have no
operations. accordance with provision C.1.1 of the UK Corporate exceptions
Governance Code (the “Code”), that they consider to report.
Component materiality For each component in our audit
the Annual Report taken as a whole to be fair,
scope, we allocated a materiality that
balanced and understandable and provides the
Governance
was less than our overall group
information necessary for members to assess the
materiality. The range of materiality
group’s and company’s position and performance,
allocated across components was
business model and strategy is materially
between £7 million and £100 million.
inconsistent with our knowledge of the group
We agreed with the Audit Committee that we would report to them and company acquired in the course of performing
misstatements identified during our audit above £7 million as well our audit.
as misstatements below that amount that, in our view, warranted • the section of the Annual Report on page 64, as We have no
reporting for qualitative reasons. required by provision C.3.8 of the Code, describing exceptions
the work of the Audit Committee does not to report.
Going concern appropriately address matters communicated by
Under the Listing Rules we are required to review the directors’ us to the Audit Committee.
statement, set out on page 61, in relation to going concern.
We have nothing to report having performed our review. The directors’ assessment of the prospects of the group and of
Under ISAs (UK & Ireland) we are required to report to you if we the principal risks that would threaten the solvency or liquidity
have anything material to add or to draw attention to in relation of the group
Under ISAs (UK & Ireland) we are required to report to you if we have
to the directors’ statement about whether they considered it
appropriate to adopt the going concern basis in preparing the anything material to add or to draw attention to in relation to:
financial statements. We have nothing material to add or to draw
• the directors’ confirmation on page 60 of the We have
attention to.
Annual Report, in accordance with provision C.2.1 nothing
As noted in the directors’ statement, the directors have concluded
of the Code, that they have carried out a robust material to
that it is appropriate to adopt the going concern basis in preparing
assessment of the principal risks facing the group, add or to draw
the financial statements. The going concern basis presumes that the
including those that would threaten its business attention to.
group and parent company have adequate resources to remain in
model, future performance, solvency or liquidity.
operation, and that the directors intend them to do so, for at least
one year from the date the financial statements were signed. As part • the disclosures in the Annual Report that describe We have
of our audit we have concluded that the directors’ use of the going those risks and explain how they are being nothing
concern basis is appropriate. However, because not all future events managed or mitigated. material to
or conditions can be predicted, these statements are not a guarantee add or to draw
as to the group’s and parent company’s ability to continue as a attention to.
going concern. • the directors’ explanation on page 19 of the Annual We have
Report, in accordance with provision C.2.2 of the nothing
Code, as to how they have assessed the prospects material to
OTHER REQUIRED REPORTING of the group, over what period they have done add or to draw
so and why they consider that period to be attention to.
Consistency of other information
appropriate, and their statement as to whether
Companies Act 2006 opinion
they have a reasonable expectation that the group
In our opinion, the information given in the Strategic Report and
will be able to continue in operation and meet its
the Directors’ Report for the financial year for which the financial
liabilities as they fall due over the period of their
statements are prepared is consistent with the financial statements.
assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
Under the Listing Rules we are required to review the directors’ This report, including the opinions, has been prepared for and only
statement that they have carried out a robust assessment of the for the company’s members as a body in accordance with Chapter 3
principal risks facing the group and the directors’ statement in of Part 16 of the Companies Act 2006 and for no other purpose. We
relation to the longer-term viability of the group. Our review was do not, in giving these opinions, accept or assume responsibility for
substantially less in scope than an audit and only consisted of making any other purpose or to any other person to whom this report is
inquiries and considering the directors’ process supporting their shown or into whose hands it may come save where expressly
statements; checking that the statements are in alignment with the agreed by our prior consent in writing.
relevant provisions of the Code; and considering whether the
statements are consistent with the knowledge acquired by us in the What an audit of financial statements involves
course of performing our audit. We have nothing to report having An audit involves obtaining evidence about the amounts and
performed our review. disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material
Adequacy of accounting records and information and misstatement, whether caused by fraud or error. This includes an
explanations received assessment of:
Under the Companies Act 2006 we are required to report to you if, • whether the accounting policies are appropriate to the group’s
in our opinion: and the company’s circumstances and have been consistently
• we have not received all the information and explanations we applied and adequately disclosed;
require for our audit; or • the reasonableness of significant accounting estimates made
• adequate accounting records have not been kept by the by the directors; and
company, or returns adequate for our audit have not been • the overall presentation of the financial statements.
received from branches not visited by us; or
• the company financial statements and the part of the Directors’ We primarily focus our work in these areas by assessing the directors’
remuneration report to be audited are not in agreement with the judgements against available evidence, forming our own judgements,
accounting records and returns. and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other
We have no exceptions to report arising from this responsibility. auditing techniques, to the extent we consider necessary to provide
a reasonable basis for us to draw conclusions. We obtain audit
Directors’ remuneration evidence through testing the effectiveness of controls, substantive
Directors’ remuneration report – Companies Act 2006 opinion procedures or a combination of both.
In our opinion, the part of the Directors’ remuneration report to In addition, we read all the financial and non-financial information
be audited has been properly prepared in accordance with the in the Annual Report to identify material inconsistencies with the
Companies Act 2006. audited financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent
Other Companies Act 2006 reporting with, the knowledge acquired by us in the course of performing the
Under the Companies Act 2006 we are required to report to you if, in audit. If we become aware of any apparent material misstatements
our opinion, certain disclosures of directors’ remuneration specified or inconsistencies we consider the implications for our report.
by law are not made. We have no exceptions to report arising from
this responsibility. Ian Chambers (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Corporate governance statement Chartered Accountants and Statutory Auditors
Under the Listing Rules we are required to review the part of the London
Corporate Governance Statement relating to ten further provisions of 27 July 2016
the Code. We have nothing to report having performed our review.
• The maintenance and integrity of the Diageo plc website is the
responsibility of the directors; the work carried out by the auditors
RESPONSIBILITIES FOR THE FINANCIAL
does not involve consideration of these matters and, accordingly,
STATEMENTS AND THE AUDIT the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially
Our responsibilities and those of the directors presented on the website.
As explained more fully in the Responsibility statement, the directors
• Legislation in the United Kingdom governing the preparation and
are responsible for the preparation of the financial statements and
dissemination of financial statements may differ from legislation in
for being satisfied that they give a true and fair view.
other jurisdictions.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and ISAs
(UK & Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
Financial statements of the group: Consolidated income statement DIAGEO Annual Report 2016 95
CONSOLIDATED INCOME
Strategic report
STATEMENT
Year ended Year ended Year ended
30 June 30 June 30 June
2016 2015 2014
Notes £ million £ million £ million
Sales 2 15,641 15,966 13,980
Excise duties 3 (5,156) (5,153) (3,722)
Net sales 2 10,485 10,813 10,258
Cost of sales 3 (4,251) (4,610) (4,029)
Gross profit 6,234 6,203 6,229
Marketing 3 (1,562) (1,629) (1,620)
Other operating expenses 3 (1,831) (1,777) (1,902)
Operating profit 2,841 2,797 2,707
Non-operating items 4 123 373 140
Governance
Finance income 5 262 244 241
Finance charges 5 (589) (656) (629)
Share of after tax results of associates and joint ventures 6 221 175 252
Profit before taxation 2,858 2,933 2,711
Taxation 7 (496) (466) (447)
Profit from continuing operations 2,362 2,467 2,264
Discontinued operations 8 – – (83)
Profit for the year 2,362 2,467 2,181
Attributable to:
Equity shareholders of the parent company – continuing operations 2,244 2,381 2,331
Equity shareholders of the parent company – discontinued operations – – (83)
Non-controlling interests – continuing operations 118 86 (67)
2,362 2,467 2,181
Weighted average number of shares million million million
Shares in issue excluding own shares 2,508 2,505 2,506
Dilutive potential ordinary shares 10 12 11
2,518 2,517 2,517
Basic earnings per share pence pence pence

Continuing operations 89.5 95.0 93.0
Discontinued operations – – (3.3)
89.5 95.0 89.7
Diluted earnings per share
Continuing operations 89.1 94.6 92.6
Discontinued operations – – (3.3)
89.1 94.6 89.3

The accompanying notes are an integral part of these consolidated financial statements.
96 DIAGEO Annual Report 2016 Financial statements of the group: Consolidated statement of comprehensive income
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
Year ended Year ended Year ended
30 June 30 June 30 June
2016 2015 2014
£ million £ million £ million
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment plans
– group (851) 125 (169)
– associates and joint ventures (4) (10) 2
– non-controlling interests (1) (2) –
Tax on post employment plans 166 (11) 20
(690) 102 (147)
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
– group 1,217 (345) (1,117)
– associates and joint ventures 325 (205) (294)
– non-controlling interests 176 56 (120)
Net investment hedges (843) 269 398
Exchange loss recycled to the income statement
– on translation of foreign operation 133 88 –
– on net investment hedges (82) – –
Tax on exchange differences – group (8) 30 12
Tax on exchange differences – non-controlling interests 4 – –
Effective portion of changes in fair value of cash flow hedges
– gains/(losses) taken to other comprehensive income – group 28 (40) 59
– gains/(losses) taken to other comprehensive income – associates and joint ventures 3 (6) (5)
– recycled to income statement (145) (58) 34
Tax on effective portion of changes in fair value of cash flow hedges 3 18 2
Fair value movements on available-for-sale investments
– gains taken to other comprehensive income – group 4 11 55
– gains taken to other comprehensive income – non-controlling interests 4 9 –
– recycled to income statement – group (15) – (140)
– recycled to income statement – non-controlling interests (13) – –
Tax on available-for-sale fair value movements 4 (4) –
Hyperinflation adjustment 6 18 11
Tax on hyperinflation adjustment (2) – (2)
799 (159) (1,107)
Other comprehensive profit/(loss), net of tax, for the year 109 (57) (1,254)
Total comprehensive income for the year 2,471 2,410 927
Attributable to:
Equity shareholders of the parent company 2,183 2,261 1,114
Non-controlling interests 288 149 (187)
Total comprehensive income for the year 2,471 2,410 927
Financial statements of the group: Consolidated balance sheet DIAGEO Annual Report 2016 97
CONSOLIDATED BALANCE SHEET
Strategic report
30 June 2016 30 June 2015
Notes £ million £ million £ million £ million
Non-current assets
Intangible assets 10 12,370 11,231
Property, plant and equipment 11 3,881 3,690
Biological assets 10 65
Investments in associates and joint ventures 6 2,528 2,076
Other investments 12 31 109
Other receivables 14 46 46
Other financial assets 15 420 292
Deferred tax assets 7 298 189
Post employment benefit assets 13 55 436
19,639 18,134
Governance
Current assets
Inventories 14 4,579 4,574
Trade and other receivables 14 2,686 2,435
Assets held for sale 3 143
Cash and cash equivalents 16 1,089 472
8,852 7,670
Total assets 28,491 25,804
Current liabilities
Borrowings and bank overdrafts 16 (2,058) (1,921)
Other financial liabilities 15 (280) (156)
Trade and other payables 14 (3,372) (2,943)
Liabilities held for sale – (3)
Corporate tax payable (340) (162)
Provisions 14 (137) (105)
(6,187) (5,290)
Non-current liabilities
Borrowings 16 (8,071) (7,917)
Other payables 14 (70) (69)
Deferred tax liabilities 7 (1,982) (1,896)
Post employment benefit liabilities 13 (1,248) (695)
(12,124) (11,258)
Total liabilities (18,311) (16,548)
Net assets 10,180 9,256
Equity
Share capital 17 797 797
Share premium 1,347 1,346
Other reserves 2,625 1,994 Additional information for shareholders
Retained earnings 3,761 3,634
Equity attributable to equity shareholders of the parent company 8,530 7,771
Non-controlling interests 17 1,650 1,485
Total equity 10,180 9,256
These consolidated financial statements were approved by a duly appointed and authorised committee of the Board of Directors on
27 July 2016 and were signed on its behalf by Ivan Menezes and Kathryn Mikells, Directors.
98 DIAGEO Annual Report 2016 Financial statements of the group: Consolidated statement of changes in equity
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Retained earnings/(deficit)
Equity
Hedging attributable
Capital and Other to parent Non-
Share Share redemption exchange Own retained company controlling Total
capital premium reserve reserve shares earnings Total shareholders interests equity
£ million £ million £ million £ million £ million £ million £ million £ million £ million £ million
At 30 June 2013 797 1,344 3,146 8 (2,232) 3,973 1,741 7,036 1,052 8,088
Profit for the year – – – – – 2,248 2,248 2,248 (67) 2,181
Other comprehensive income – – – (911) – (223) (223) (1,134) (120) (1,254)
Employee share schemes – – – – (48) (67) (115) (115) – (115)
Share-based incentive plans – – – – – 37 37 37 – 37
Share-based incentive plans in
respect of associates – – – – – 3 3 3 – 3
Tax on share-based incentive plans – – – – – 1 1 1 – 1
Shares issued – 1 – – – – – 1 – 1
Acquisitions – – – – – – – – 8 8
Change in fair value of put options – – – – – (7) (7) (7) – (7)
Purchase of non-controlling
interests – – – – – (19) (19) (19) (18) (37)
Dividends paid – – – – – (1,228) (1,228) (1,228) (88) (1,316)
At 30 June 2014 797 1,345 3,146 (903) (2,280) 4,718 2,438 6,823 767 7,590
Profit for the year – – – – – 2,381 2,381 2,381 86 2,467
Other comprehensive income – – – (249) – 129 129 (120) 63 (57)
Employee share schemes – – – – 52 (58) (6) (6) – (6)
Shares issued – 1 – – – – – 1 – 1
Acquisitions – – – – – – – – 641 641
Change in fair value of put options – – – – – (9) (9) (9) – (9)
Disposal of non-controlling
interests – – – – – 1 1 1 – 1
Dividends paid – – – – – (1,341) (1,341) (1,341) (72) (1,413)
At 30 June 2015 797 1,346 3,146 (1,152) (2,228) 5,862 3,634 7,771 1,485 9,256
Profit for the year – – – – – 2,244 2,244 2,244 118 2,362
Other comprehensive income – – – 631 – (692) (692) (61) 170 109
Employee share schemes – – – – 39 (38) 1 1 – 1
Shares issued – 1 – – – – – 1 – 1
Disposal of non-controlling
interests – – – – – – – – (24) (24)
Purchase of non-controlling
interests – – – – – (18) (18) (18) (3) (21)
Purchase of rights issue of
non-controlling interests – – – – – (5) (5) (5) 5 –
Dividends paid – – – – – (1,443) (1,443) (1,443) (101) (1,544)
At 30 June 2016 797 1,347 3,146 (521) (2,189) 5,950 3,761 8,530 1,650 10,180
Financial statements of the group: Consolidated statement of cash flows DIAGEO Annual Report 2016 99
CONSOLIDATED STATEMENT OF CASH FLOWS
Strategic report
Year ended 30 June 2016 Year ended 30 June 2015 Year ended 30 June 2014
Notes £ million £ million £ million £ million £ million £ million
Cash flows from operating activities
Discontinued operations – – 83
Taxation 496 466 447
Share of after tax results of associates and joint ventures (221) (175) (252)
Net finance charges 327 412 388
Non-operating items (123) (373) (140)
Operating profit 2,841 2,797 2,707
Increase in inventories (95) (204) (229)
(Increase)/decrease in trade and other receivables (86) 274 (276)
Increase/(decrease) in trade and other payables and provisions 128 47 (92)
Governance
Net (increase)/decrease in working capital (53) 117 (597)
Depreciation, amortisation and impairment 473 440 629
Dividends received 173 183 228
Post employment payments less amounts included in operating profit (59) (70) (196)
Other items (15) (11) (80)
572 542 581
Cash generated from operations 3,360 3,456 2,691
Interest received 174 183 143
Interest paid (479) (599) (575)
Taxation paid (507) (489) (469)
(812) (905) (901)
Net cash from operating activities 2,548 2,551 1,790
Cash flows from investing activities
Disposal of property, plant and equipment and computer software 57 52 80
Purchase of property, plant and equipment and computer software (506) (638) (642)
Movements in loans and other investments (2) (2) 7
Sale of businesses 9 1,062 978 2
Acquisition of businesses 9 (15) (1,284) (536)
Net cash inflow/(outflow) from investing activities 596 (894) (1,089)
Cash flows from financing activities
Proceeds from issue of share capital 1 1 1
Net purchase of own shares for share schemes (1) (8) (113)
Dividends paid to non-controlling interests (101) (72) (88)
Disposal of non-controlling interests – 1 –
Purchase of shares of non-controlling interests 9 (21) – (37)
Proceeds from bonds 16 – 791 1,378
Repayment of bonds 16 (1,003) (1,492) (1,471)
Net movements on other borrowings 16 (233) 386 (64)
Equity dividends paid 17 (1,443) (1,341) (1,228)
Net cash outflow from financing activities (2,801) (1,734) (1,622) Additional information for shareholders
Net increase/(decrease) in net cash and cash equivalents 16 343 (77) (921)
Exchange differences 84 (73) (192)
Net cash and cash equivalents at beginning of the year 382 532 1,645
Net cash and cash equivalents at end of the year 809 382 532
Net cash and cash equivalents consist of:

Cash and cash equivalents 16 1,089 472 622
Bank overdrafts 16 (280) (90) (90)
809 382 532
100 DIAGEO Annual Report 2016 Financial statements of the group: Accounting information and policies
ACCOUNTING This section describes the basis of preparation of the

INFORMATION consolidated financial statements and the group’s
AND POLICIES accounting policies that are applicable to the financial
statements as a whole. Accounting policies, critical
Introduction accounting estimates and judgements that are specific
to a note are included in the note to which they relate.
This section also explains 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 The income statements and cash flows of non-sterling entities are
(a) Basis of preparation translated into sterling at weighted average rates of exchange, other
The consolidated financial statements are prepared in accordance than substantial transactions that are translated at the rate on the
with International Financial Reporting Standards (IFRS) as adopted for date of the transaction. Exchange differences arising on the
use in the European Union (EU) and as issued by the International retranslation to closing rates are taken to the exchange reserve.
Accounting Standards Board (IASB). The consolidated financial Assets and liabilities are translated at closing rates. Exchange
statements are prepared on a going concern basis under the differences arising on the retranslation at closing rates of the opening
historical cost convention, unless stated otherwise in the relevant balance sheets of overseas entities are taken to the exchange reserve,
accounting policy. as are exchange differences arising on foreign currency borrowings
The preparation of financial statements in conformity with IFRS and financial instruments designated as net investment hedges, to
requires management to make estimates and assumptions that affect the extent that they are effective. Tax charges and credits arising on
the reported amounts of assets and liabilities, the disclosure of such items are also taken to the exchange reserve. Gains and losses
contingent assets and liabilities at the date of the financial accumulated in the exchange reserve are recycled to the income
statements, and the reported amounts of revenues and expenses statement when the foreign operation is sold. Other exchange
during the year. Actual results could differ from those estimates. differences are taken to the income statement. Transactions in
foreign currencies are recorded at the rate of exchange at the date
(b) Going concern of the transaction.
The consolidated financial statements are prepared on a going The principal foreign exchange rates used in the translation of
concern basis. financial statements for the three years ended 30 June 2016,
expressed in US dollars and euros per £1, were as follows:
(c) Consolidation 2016 2015 2014
The consolidated financial statements include the results of the
US dollar
company and its subsidiaries together with the group’s attributable
Income statement and cash flows(i) 1.48 1.57 1.63
share of the results of associates and joint ventures. A subsidiary is an
entity controlled by Diageo plc. The group controls an investee when Assets and liabilities(ii) 1.33 1.57 1.71
it is exposed, or has rights, to variable returns from its involvement Euro
with the investee and has the ability to affect those returns through Income statement and cash flows(i) 1.34 1.31 1.20
its power over the investee. Where the group has the ability to Assets and liabilities(ii) 1.20 1.41 1.25
exercise joint control over an entity but has rights to specified assets
(i) Weighted average rates
and obligations for liabilities of that entity, the entity is included on (ii) Year end rates
the basis of the group’s rights over those assets and liabilities.
The group uses foreign exchange hedges to mitigate the effect of
(d) Foreign currencies exchange rate movements. For further information see note 15.
Items included in the financial statements of the group’s subsidiaries,
associates and joint ventures are measured using the currency of
the primary economic environment in which each entity operates
(its functional currency). The consolidated financial statements
are presented in sterling, which is the functional currency of the
parent company.
Financial statements of the group: Accounting information and policies DIAGEO Annual Report 2016 101
(e) Critical accounting estimates and judgements The following standards issued by the IASB (not yet endorsed by the
Strategic report
The critical accounting policies, which the directors consider are EU) have not yet been adopted by the group:
of greater complexity and/or particularly subject to the exercise
of judgements, are set out in detail in the relevant notes: IFRS 9 – Financial instruments (effective in the year ending
• Exceptional items – page 106 30 June 2019) is ultimately intended to replace IAS 39 and covers
• Taxation – page 110 the classification, measurement and derecognition of financial
instruments together with a new hedge accounting model and
• Brands, goodwill and other intangibles – page 117
new impairment methodology.
• Post employment benefits – page 121 Based on a preliminary assessment the group believes that the
• Contingent liabilities and legal proceedings – page 137 adoption of IFRS 9 will not have a significant impact on its
consolidated results or financial position.
Venezuela is a hyper-inflationary economy where the government
maintains a regime of strict currency controls with multiple foreign IFRS 15 – Revenue from contracts with customers (effective in the year
currency rate systems. Access to US dollar on these exchange ending 30 June 2019) is based on the principle that revenue is
systems is very limited. The foreign currency denominated recognised when control of goods or services is transferred to the
transactions and balances of the group’s Venezuelan operations are customer and provides a single, principles based five-step model to
translated into the local functional currency (VEF) at the rate they be applied to all sales contracts. It replaces the separate models for
Governance
are expected to be settled, applying the most appropriate official goods, services and construction contracts under current IFRS.
exchange rate. For consolidation purposes, the group converts its Based on a preliminary assessment the group believes that the
Venezuelan operations using management’s estimate of the adoption of IFRS 15 will not have a significant impact on its
exchange rate that capital and dividend repatriations are expected consolidated results or financial position.
to be realised. The consolidation exchange rate and the accounting
treatment are monitored and reviewed depending on the economic IFRS 16 – Leases (effective in the year ending 30 June 2020) sets out
and regulatory developments in the country. the principles for the recognition, measurement, presentation and
disclosure of leases for both the lessee and the lessor. It eliminates the
(f) New accounting policies classification of leases as either operating leases or finance leases and
No amendments to the accounting standards were issued by the introduces a single lessee accounting model where the lessee is
IASB or the International Financial Reporting Interpretations required to recognise assets and liabilities for all material leases that
Committee (IFRIC) that are first applicable to Diageo in the year have a term of greater than a year.
ending 30 June 2016. The group is currently considering the implications of IFRS 16
which is expected to have an impact on the group’s consolidated
IAS 32 – Financial Instruments: Presentation – Offsetting and results and financial position.
cash-pooling arrangements
In April 2016 guidance was issued by the IFRS Interpretations There are a number of amendments to IFRS, effective for the year
Committee (IFRIC) to help determine whether entities are able to ending 30 June 2017, which are not expected to significantly impact
offset cash-pooling balances in accordance with IAS 32. The group the group’s consolidated results or financial position.
has changed its accounting policy to be in line with the
interpretation, but has not restated the prior year financial statements
as the amounts involved are not material. Cash and cash equivalents
and borrowings and bank overdrafts as at 30 June 2014 and
30 June 2015 would have increased by £102 million and £139 million,
respectively with the same impact on total assets and total liabilities.

102 DIAGEO Annual Report 2016 Financial statements of the group: Results for the year
RESULTS FOR This section explains the results and performance of

THE YEAR the group for the three years ended 30 June 2016.
Disclosures are provided for segmental information,
Introduction operating costs, exceptional items, finance income and
charges, the group’s share of results of associates and
joint ventures, taxation and discontinued operations.
For associates, joint ventures and taxation, balance
sheet disclosures are also provided in this section.
2. Segmental information Continuing operations also include the Corporate function.

Corporate revenues and costs are in respect of central costs,
Accounting policies including finance, marketing, corporate relations, human resources
Sales comprise revenue from the sale of goods, royalties and and legal, as well as certain information systems, facilities and
rents receivable. Revenue from the sale of goods includes excise employee costs that are not allocable to the geographical segments
and other duties which the group pays as principal but excludes or to the ISC. They also include rents receivable and payable in
amounts collected on behalf of third parties, such as value added respect of properties not used by the group in the manufacture, sale
tax. Sales are recognised depending upon individual customer or distribution of premium drinks and the results of Gleneagles Hotel
terms at the time of despatch, delivery or when the risk of loss (disposed on 30 June 2015).
transfers. Provision is made for returns where appropriate. Sales are Diageo uses shared services operations, including captive and
stated net of price discounts, allowances for customer loyalty and outsourced centres, to deliver transaction processing activities for
certain promotional activities and similar items. markets and operational entities. These centres are located in
Net sales are sales less excise duties. Diageo incurs excise duties Hungary, Romania, Kenya, Colombia, the Philippines and India. The
throughout the world. In the majority of countries excise duties are captive business service centre in Budapest also performs certain
effectively a production tax which becomes payable when the central finance activities, including elements of financial planning and
product is removed from bonded premises and is not directly reporting and treasury. The costs of shared service operations are
related to the value of sales. It is generally not included as a separate recharged to the regions.
item on external invoices; increases in excise duty are not always The segmental information for net sales and operating profit
passed on to the customer and where a customer fail to pay for before exceptional items is reported at budgeted exchange rates
product received the group cannot reclaim the excise duty. The in line with management reporting. For management reporting
group therefore recognises excise duty as a cost to the group. purposes the group measures the current year at, and restates the
Advertising costs, point of sale materials and sponsorship prior year net sales and operating profit to, the current year’s
payments are charged to marketing in operating profit when the budgeted exchange rates. These exchange rates are set prior to the
company has a right of access to the goods or services acquired. financial year as part of the financial planning process and provide
a consistent exchange rate to measure the performance of the
Diageo is an international manufacturer and distributor of premium business throughout the year. The adjustments required to
drinks. Diageo also owns a number of investments in associates and retranslate the segmental information to actual exchange rates
joint ventures as set out in note 6. and to reconcile it to the group’s reported results are shown in the
The segmental information presented is consistent with following tables. The comparative segmental information, prior to
management reporting provided to the executive committee (the retranslation, has not been restated at the current year’s budgeted
chief operating decision maker). exchange rates but is presented at the budgeted rates for the
The Executive Committee considers the business principally from respective years.
a geographical perspective based on the location of third party sales In addition, for management reporting purposes Diageo presents
and the business analysis is presented by geographical segment. In separately the results of acquisitions and disposals completed in the
addition to these geographical selling segments, a further segment current and prior year from the results of the geographical segments.
reviewed by the Executive Committee is the International Supply The impact of acquisitions and disposals on net sales and operating
Centre (ISC), which manufactures products for other group profit is disclosed under the appropriate geographical segments in
companies and includes the production sites in the United Kingdom, the following tables at budgeted exchange rates.
Ireland, Italy and Guatemala.
Financial statements of the group: Results for the year DIAGEO Annual Report 2016 103
(a) Segmental information for the consolidated income statement – continuing operations
Strategic report
Latin Eliminate
Europe, America inter- Total
North Russia and and Asia segment operating Corporate
America Turkey Africa Caribbean Pacific ISC sales segments and other Total
2016
Sales 4,037 4,593 1,875 1,078 4,022 1,355 (1,355) 15,605 36 15,641
Net sales
At budgeted exchange rates(i) 3,282 2,481 1,286 901 2,114 1,452 (1,373) 10,143 38 10,181
Acquisitions and disposals 106 75 74 59 9 – – 323 – 323
ISC allocation 10 50 4 8 7 (79) – – – –
Retranslation to actual
exchange rates 167 (62) 37 (105) (54) (18) 18 (17) (2) (19)
Net sales 3,565 2,544 1,401 863 2,076 1,355 (1,355) 10,449 36 10,485
Operating profit/(loss)
At budgeted exchange rates(i) 1,459 738 212 221 399 112 – 3,141 (149) 2,992
Governance
Acquisitions and disposals 24 7 (8) 13 1 – – 37 – 37
ISC allocation 14 70 6 11 11 (112) – – – –
exchange rates 54 (14) 2 (46) (16) – – (20) (1) (21)
Operating profit/(loss) before
exceptional items 1,551 801 212 199 395 – – 3,158 (150) 3,008
Exceptional items – – – (118) (49) – – (167) – (167)
Operating profit/(loss) 1,551 801 212 81 346 – – 2,991 (150) 2,841
Non-operating items 123
Net finance charges (327)
Share of after tax results of
associates and joint ventures
– Moët Hennessy 217
– Other 4
Profit before taxation 2,858
Latin Eliminate
2015
Sales 3,909 4,683 1,868 1,297 4,129 1,381 (1,381) 15,886 80 15,966
Net sales
At budgeted exchange rates(i) 3,462 2,666 1,457 1,105 1,291 1,485 (1,413) 10,053 82 10,135
Acquisitions and disposals 25 34 1 26 903 – – 989 – 989
ISC allocation 9 44 4 8 7 (72) – – – –
exchange rates (41) (127) (47) (106) 12 (32) 32 (309) (2) (311)
Net sales 3,455 2,617 1,415 1,033 2,213 1,381 (1,381) 10,733 80 10,813
Acquisitions and disposals (3) 12 – 1 49 1 – 60 4 64
ISC allocation 10 47 4 8 7 (76) – – – –
exchange rates (36) (34) (15) (60) (3) – – (148) 9 (139)
Exceptional items (28) (20) (7) (5) (193) (6) – (259) (10) (269)
Operating profit/(loss) 1,420 784 311 258 163 (6) – 2,930 (133) 2,797
associates and joint ventures –
– Other 11
Latin Eliminate
2014
Sales 3,915 4,935 1,846 1,404 1,801 1,504 (1,504) 13,901 79 13,980
Net sales
At budgeted exchange rates(i) 3,563 2,824 1,506 1,311 1,446 1,595 (1,504) 10,741 79 10,820
Acquisitions and disposals 44 3 – – – – – 47 – 47
ISC allocation 12 56 5 10 8 (91) – – – –
exchange rates (175) (69) (81) (177) (107) – – (609) – (609)
Net sales 3,444 2,814 1,430 1,144 1,347 1,504 (1,504) 10,179 79 10,258
Acquisitions and disposals (12) (3) – – (19) – – (34) (2) (36)
ISC allocation 11 52 4 9 8 (84) – – – –
exchange rates (74) (34) (30) (78) (39) – – (255) – (255)
Exceptional items (35) (20) (23) (14) (276) (47) – (415) (12) (427)
Operating profit/(loss) 1,425 833 317 314 7 (47) – 2,849 (142) 2,707
associates and joint ventures –
– Other 6
(i) These items represent the IFRS 8 performance measures for the geographical and ISC segments.
(1) The net sales figures for ISC reported to the Executive Committee primarily comprise inter-segment sales and these are eliminated in a separate column in the above segmental analysis. Apart from sales by
the ISC segment to the other operating segments, inter-segmental sales are not material.
(2) The group’s net finance charges are managed centrally and are not attributable to individual operating segments.
(3) Approximately 40% of annual net sales occur in the last four months of each calendar year.
(b) Other segmental information

Latin
Europe, America
North Russia and and Asia Corporate
America Turkey Africa Caribbean Pacific ISC and other Total
£ million £ million £ million £ million £ million £ million £ million £ million
2016
Capital expenditure 105 29 107 20 52 150 43 506
Depreciation and intangible asset amortisation (39) (21) (83) (10) (35) (106) (61) (355)
Exceptional accelerated depreciation and impairment – – – (14) – (8) – (22)
Exceptional impairment of intangible assets – – – (104) – – – (104)
2015
Exceptional accelerated depreciation and impairment (22) – – (1) – – – (23)
Exceptional impairment of associate – – – – (41) – – (41)
Exceptional accelerated amortisation – – – – – – (5) (5)
2014
Exceptional accelerated depreciation and impairment (2) – – – (4) (18) (1) (25)
Exceptional impairment of intangible assets – – – – (260) – – (260)
(c) Category and geographical analysis
Strategic report
Category analysis Geographical analysis
Ready to Great United Nether- Rest of
Spirits Beer Wine drink Other Total Britain States lands India World Total
£ million £ million £ million £ million £ million £ million £ million £ million £ million £ million £ million £ million
2016
Sales(i) 11,993 2,486 265 726 171 15,641 1,672 3,729 56 2,465 7,719 15,641
Non-current assets(ii), (iii) – – – – – – 1,679 3,859 2,350 3,764 7,224 18,876
2015
Sales(i) 12,052 2,562 479 703 170 15,966 1,765 3,592 54 2,463 8,092 15,966
Non-current assets(ii), (iii) – – – – – – 1,654 3,340 2,196 3,439 6,588 17,217
2014
Sales(i) 9,941 2,581 468 817 173 13,980 1,735 3,568 65 86 8,526 13,980
Non-current assets(ii), (iii) – – – – – – 1,625 3,097 2,100 802 7,124 14,748
(i) The geographical analysis of sales is based on the location of third party customers.
(ii) The geographical analysis of non-current assets is based on the geographical location of the assets and comprises intangible assets, property, plant and equipment, biological assets, investments in
associates and joint ventures, other investments and non-current other receivables.
Governance
(iii) The management information provided to the chief operating decision maker does not include an analysis of assets and liabilities by category and therefore is not disclosed.
3. Operating costs (b) Auditor fees

2016 2015 2014 Other external charges include the fees of the principal auditor of
the group, PricewaterhouseCoopers LLP and its affiliates (PwC) are
Excise duties 5,156 5,153 3,722
analysed below.
Cost of sales 4,251 4,610 4,029 PwC was appointed as the group’s principal auditor for the year
Marketing 1,562 1,629 1,620 ended 30 June 2016. Accordingly, comparative figures in the table
Other operating expenses 1,831 1,777 1,902 below for the years ended 30 June 2015 and 30 June 2014 are in
12,800 13,169 11,273 respect of remuneration paid to the previous principal auditor of
Comprising: the group, KPMG LLP and its affiliates (KPMG).
Excise duties – Great Britain 853 862 863 2016 2015 2014
– United States 468 450 467 £ million £ million £ million
– India 1,588 1,472 33 Audit of these financial
statements 3.4 3.6 3.4
– Other 2,247 2,369 2,359
Audit of financial statements
Increase in inventories (100) (200) (291)
of subsidiaries 2.3 2.7 2.3
Raw materials and consumables 2,548 2,725 2,327
Audit related assurance services(i) 1.4 1.6 1.6
Marketing 1,562 1,629 1,620
Total audit fees (Audit fees) 7.1 7.9 7.3
Other external charges 1,767 2,017 1,810
Other services relevant to taxation
Staff costs 1,475 1,433 1,479 (Tax fees)(ii) 0.5 0.8 0.6
Depreciation, amortisation and Other assurance services (Audit
impairment 473 440 629 related fees)(iii) 0.4 0.6 0.7
Gains on disposal of properties (39) (26) (25) All other non-audit fees (All other
Net foreign exchange losses 1 13 12 fees)(iv) 0.9 0.7 0.4
Other operating income (i) (43) (15) (10) 8.9 10.0 9.0
12,800 13,169 11,273
(i) Audit related assurance services are principally in respect of reporting under section 404 of the
US Sarbanes-Oxley Act and the review of the interim financial information.
(i) On 7 July 2015, Diageo sold 8.5 million shares in United Breweries Limited resulting in a gain
(ii) Other services relevant to taxation principally comprise tax advice.
of £28 million.
(iii) Other assurance services comprise the aggregate fees for assurance and related services that are
related to the performance of the audit or review of the financial statements and are not reported
(a) Other external charges under ‘total audit fees’.
(iv) All other non-audit fees are principally in respect of immigration and advisory services.
Other external charges include operating lease rentals for plant and Additional information for shareholders
equipment of £29 million (2015 – £29 million; 2014 – £30 million), (1) Disclosure requirements for auditor fees in the United States are different from those required in
other operating lease rentals (mainly properties) of £72 million the United Kingdom. The terminology by category required in the United States is disclosed in
(2015 – £87 million; 2014 – £85 million), research and development brackets in the above table. All figures are the same for the disclosures in the United Kingdom and
the United States apart from £0.3 million of the costs for the year ended 2016 provided by PwC
expenditure in respect of new drinks products and package design (£0.4 million for both of the years ended 30 June 2015 and 30 June 2014, respectively provided by
in the year leading up to product launch of £28 million (2015 – KPMG) in respect of the review of the interim financial information which would be included in
£26 million; 2014 – £24 million) and maintenance and repairs of audit related fees in the United States rather than audit fees.
£91 million (2015 – £95 million; 2014 – £72 million).

Audit services provided by KPMG for the year ended 30 June 2016
were £0.6 million. Audit services by firms other than PwC and KPMG
for the year ended 30 June 2016, and other than KPMG for the
comparative periods were not material. PwC fees for audit services
in respect of employee pension plans were £0.2 million for the year
ended 30 June 2016. In the years ended 30 June 2015 and 2014 the
KPMG fees for audit services in respect of employee pension plans
were £0.4 million and £0.3 million, respectively.
(c) Staff costs and average number of employees 4. Exceptional items

2016 2015 2014
£ million £ million £ million Accounting policies
Aggregate remuneration
Critical accounting estimates and judgements
Exceptional items are those that in management’s judgement
Wages and salaries 1,236 1,180 1,242
need to be disclosed by virtue of their size or nature. Such items
Share-based incentive plans 28 36 38
are included within the income statement caption to which
Employer’s social security 85 88 92 they relate, and are separately disclosed in the notes to the
Employer’s pension consolidated financial statements.
– defined benefit plans 99 103 91
– defined contribution plans 16 15 15 Non-operating items
Other post employment plans 11 11 1 Gains and losses on the sale of businesses, brands or distribution
1,475 1,433 1,479 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
The average number of employees on a full time equivalent basis of the production, marketing and distribution of premium drinks,
(excluding employees of associates and joint ventures) was as follows: are disclosed as non-operating exceptional items below operating
2016 2015 2014(i) profit in the consolidated income statement. It is believed that
North America 2,477 2,748 3,120
such classification further helps investors to understand the
performance of the group.
Europe, Russia and Turkey 4,164 4,073 4,056
Africa 5,381 4,997 5,252
2016 2015 2014
Latin America and Caribbean 3,013 3,166 3,002 £ million £ million £ million
Asia Pacific 9,711 10,520 3,985 Items included in operating profit
ISC 4,188 4,291 4,431 Brand, goodwill and tangible asset
Corporate and other 3,144 3,567 3,509 impairment (a) (118) – (264)
32,078 33,362 27,355 Disengagement agreements relating
to United Spirits Limited (b) (49) – –
(i) Employees of corporate functions whose costs are charged to the operating segments are Korea settlement (c) – (146) –
included in Corporate.
Associate impairment (d) – (41) –
At 30 June 2016 the group had, on a full time equivalent basis, 31,485 Restructuring programmes (e) – (82) (163)
(2015 – 32,409; 2014 – 26,588) employees. The average number of (167) (269) (427)
employees of the group, including part time employees, for the year Non-operating items
was 32,969 (2015 – 34,179; 2014 – 27,958). Sale of businesses
Jamaica, Singapore and Malaysia beer
(d) Exceptional operating items interests (f) 457 – –
Included in the table above are exceptional operating items Wines in the United States and
as follows: Percy Fox (g) (191) – –
Argentina (h) (38) – –
2016 2015 2014
£ million £ million £ million South African associate interests (i) (27) – –
Other external charges 49 170 31 Kenya – glass business (CGI) (j) 14 – –
Staff costs Gleneagles Hotel (k) – 73 –
– Net charge in respect of Bushmills (l) – 174 –
restructuring programmes – 30 111 Step ups
Depreciation, amortisation and United Spirits Limited (m) – 103 140
impairment
Don Julio (l) – 63 –
– Brand, goodwill and tangible
South Africa (n) – (10) –
asset impairment 118 – 264
Other
– Accelerated depreciation
and amortisation – 28 21 Provision for a receivable related to
a loan guarantee (o) (92) – –
– Associate impairment – 41 –
Guarantee (o) – (30) –
Total exceptional operating
costs (note 4) 167 269 427 123 373 140
Exceptional items before taxation (44) 104 (287)
Cost of sales – 25 23 Items included in taxation (note 7) 56 51 99
Other operating expenses 167 244 404 Exceptional items in continuing
Total exceptional operating operations 12 155 (188)
costs (note 4) 167 269 427 Discontinued operations net of
taxation (note 8) – – (83)
Total exceptional items 12 155 (271)
Attributable to:
Equity shareholders of the parent
company 2 156 (146)
Non-controlling interests 10 (1) (125)
Total exceptional items 12 155 (271)
(a) In the year ended 30 June 2016, an impairment charge in respect (g) On 1 January 2016, Diageo completed the sale of the majority of
Strategic report
of the Ypióca brand and related tangible fixed assets and goodwill its wine interests in the United States and its UK based Percy Fox
allocated to the Paraguay, Uruguay and Brazil (PUB) cash-generating businesses to Treasury Wine Estates. Together with the sale of the
unit of £62 million, £14 million and £42 million, respectively, was group’s other wine interests in the United States the transactions
charged to other operating expenses. Forecast cash flow resulted in a loss before taxation on disposal of £191 million including
assumptions have been reduced principally due to a challenging an estimated provision for the settlement of a guarantee given in
economic environment in Brazil and significant adverse changes in respect of the lease payments due to Realty Income Corporation,
local tax regulation. the lessor of the vineyards. The loss is net of an exchange gain of
In the year ended 30 June 2014, an exceptional impairment loss £12 million, in respect of prior years, recycled from other
of £260 million in respect of the Shui Jing Fang brand and £4 million comprehensive income and transaction costs of £8 million.
in respect of fixed assets was charged to other operating expenses.
(h) On 29 January 2016, Diageo disposed of its interests in Argentina
(b) On 25 February 2016 the group incurred an exceptional operating to Grupo Peñaflor. The transaction resulted in a loss before taxation
charge of £49 million including a $75 million (£53 million) payment to of £38 million including a cumulative exchange loss of £20 million,
Dr Vijay Mallya over a five year period in consideration for (i) his in respect of prior years, recycled from other comprehensive income
resignation and the termination of his appointment and governance and other directly attributable costs of £7 million.
rights and his relinquishing of the rights and benefits attached to his
Governance
position as Chairman and Non-Executive Director of United Spirits (i) On 1 December 2015, Diageo disposed of its 42.25% equity
Limited (USL); (ii) his agreement to five-year global non-compete interests in DHN Drinks, its 25% equity stake in Sedibeng Breweries
(excluding the United Kingdom), non-interference, non-solicitation Limited and its 15.01% equity stake in Namibia Breweries Limited
and standstill undertakings; and (iii) his agreement that he and his (South African associate interests) to Heineken. The net cash
affiliates will not pursue any claims against Diageo, USL and their consideration received was £120 million, which included the
affiliates. In addition to the amount Diageo agreed to pay Dr Vijay repayment of £31 million in respect of loans previously made to
Mallya there was net gain of £4 million arising from the termination DHN Drinks and Sedibeng Breweries Limited. A loss before taxation
of certain related agreements, that were previously provided for less of £27 million, including a £30 million cumulative exchange loss, in
legal fees directly attributable to the settlement. See note 18(d). respect of prior years, recycled from other comprehensive income,
was accounted for in the income statement.
(c) In the year ended 30 June 2015, £146 million was charged in
respect of settlement of several related disputes with the Korean (j) On 30 September 2015, the group completed the disposal of its
customs authorities regarding the transfer pricing methodology shareholding in Central Glass Industries Limited (CGI), a Kenyan glass
applicable to imported products. Total payments to settle these bottle manufacturer, resulting in a gain before taxation of £14 million,
disputes in 2015 were £74 million as £87 million was paid to the net of £1 million transaction costs. £7 million of the gain is
customs authorities prior to 30 June 2014, and was previously attributable to non-controlling interests.
accounted for as a receivable from Korean customs.
(k) On 30 June 2015, Diageo completed the disposal of Gleneagles
(d) In the year ended 30 June 2015, an exceptional impairment Hotels Limited to the Ennismore group.
charge of £41 million was charged to other operating expenses
in respect of the group’s 45.56% equity investment in Hanoi Liquor (l) On 27 February 2015, the group completed the purchase of the
Joint Stock Company. 50% equity interest in Don Julio B.V. that it did not already own
(giving Diageo 100% ownership of the brand and production facility)
(e) There have been a number of restructuring programmes which and the Mexican distribution business of Don Julio. As a result of Don
were all completed by 30 June 2015. The costs incurred in the two Julio becoming a subsidiary of the group a gain of £63 million (net of
years ended 30 June 2015 were largely in respect of redundancies transaction costs of £7 million) arose, being the difference between
and accelerated depreciation and were incurred in all regions. the book value of the joint venture prior to the transaction and the
fair value of £115 million.
(f) On 7 October 2015, Diageo disposed of its 57.87% shareholding As part of the transaction, Diageo sold its wholly owned
in D&G (Jamaican Red Stripe business) and its 49.99% stake in GAPL subsidiary, The Old Bushmills Distillery Company Limited to the
Pte Limited (Singapore and Malaysian beer businesses) to Heineken Cuervo group, resulting in a gain of £174 million.
resulting in a gain before taxation of £457 million. The gain is net of Additional information for shareholders
a £13 million cumulative exchange loss, in respect of prior years, (m) On 4 July 2013, the group acquired an additional 14.98%
recycled from other comprehensive income and transaction costs of investment in United Spirits Limited (USL) which increased the
£7 million. As part of the transaction, Diageo purchased an additional group’s investment in USL from 10.04% to 25.02% and triggered
20% shareholding in Guinness Ghana Breweries Limited (GGBL) from a change in accounting from available-for-sale investments to
Heineken which increased Diageo’s shareholding in GGBL to 72.42%. associates. As a result, the difference of £140 million between the
original cost of the investment and its fair value of £399 million was
included in the income statement in the year ended 30 June 2014.
On 2 July 2014, with the completion of a tender offer, the group 5. Finance income and charges
acquired an additional 26% investment in USL taking its investment
to 54.78% (excluding 2.38% owned by the USL Benefit Trust). From Accounting policies
2 July 2014 the group accounted for USL as a subsidiary with a 43.91% Net interest includes interest income and charges in respect of
non-controlling interest. As a result of USL becoming a subsidiary of financial instruments and the results of hedging transactions used
the group a gain of £103 million arose, being the difference between to manage interest rate risk.
the book value of the associate prior to the transaction and its fair Finance charges directly attributable to the acquisition,
value of £982 million. The gain is net of a £79 million cumulative construction or production of a qualifying asset, being an asset
exchange loss recycled from other comprehensive income and that necessarily takes a substantial period of time to get ready for
£10 million transaction costs. its intended use or sale, are added to the cost of that asset.
Borrowing costs which are not capitalised are recognised in the
(n) On 29 May 2015, Diageo acquired the remaining 50% equity stake income statement based on the effective interest method. All
of one of the group’s joint ventures in South Africa. The difference other finance charges are recognised primarily in the income
between the fair value and the book value of the 50% that Diageo statement in the year in which they are incurred.
already owned is disclosed as an exceptional step up loss. Net other finance charges include items in respect of post
employment plans, the discount unwind of long term obligations
(o) A guarantee provided by Diageo for a loan of $135 million and hyperinflation charges. The results of operations in
(£92 million) given by Standard Chartered Bank (SCB) to Watson hyperinflationary economies are adjusted to reflect the changes
Limited was called and $135 million paid to SCB during the year. The in the purchasing power of the local currency of the entity before
underlying security package for the loan remains in place. A provision being translated to sterling.
of $135 million has been made. Further details are set out in note 18(a).
A guarantee of £30 million to Standard Chartered Bank was given 2016 2015 2014
for borrowings owed by United Breweries Overseas Limited (UBOL), £ million £ million £ million
a subsidiary of United Breweries (Holdings) Limited in April 2012. Interest income 153 162 109
The borrowings went into default, and the guarantee was called, in Fair value gain on interest rate
May 2015. Whilst Diageo continues to have the benefit of counter- instruments 88 61 115
indemnification from UBOL, it does not believe that it is likely to result Total interest income 241 223 224
in meaningful recovery and therefore fully provided for the Interest charge on bank loans
guaranteed amount in the year ended 30 June 2015. and overdrafts (67) (102) (40)
Interest charge on finance leases (13) (17) (20)
Cash payments included in cash generated from operations in Interest charge on all other
respect of exceptional restructuring items, exceptional legal borrowings (379) (409) (395)
settlements, guarantee and settlement payments and thalidomide Fair value loss on interest rate
were as follows: instruments (91) (55) (117)
Total interest charges (550) (583) (572)
2016 2015 2014
£ million £ million £ million Net interest charges (309) (360) (348)
Exceptional restructuring (52) (117) (104) Net finance income in respect
of post employment plans in
Disengagement agreements
surplus (note 13) 18 13 17
relating to United Spirits
Limited (28) – – Other finance income 3 8 –
Thalidomide (12) (19) (59) Total other finance income 21 21 17
Korea settlement – (74) – Net finance charge in respect
of post employment plans in
Guarantee related payments – (30) –
deficit (note 13) (23) (26) (29)
Total cash payments (92) (240) (163)
Unwinding of discounts (11) (14) (9)
Change in financial liability – (13) –
Hyperinflation adjustment (1) (17) (13)
Other finance charges (4) (3) (6)
Total other finance charges (39) (73) (57)
Net other finance charges (18) (52) (40)
6. Investments in associates and joint ventures On 7 October 2015, Diageo completed a transaction and disposed of
Strategic report
its 57.87% shareholding in D&G (Jamaican Red Stripe business) and its
Accounting policies 49.99% stake in GAPL Pte Limited (Singapore and Malaysian beer
An associate is an undertaking in which the group has a long term business) to Heineken. GAPL owns 51% of Guinness Anchor Berhad,
equity interest and over which it has the power to exercise operating in Malaysia, which was also disposed of.
significant influence. A joint venture is a joint arrangement On 1 December 2015, the group disposed of its South African
whereby the parties that have joint control of the arrangement associate interests which were accounted for as assets held for sale
have rights to the net assets of the arrangement. The group’s at 30 June 2015.
interest in the net assets of associates and joint ventures is Additions of £28 million include investments made during the
reported in investments in the consolidated balance sheet and its year, for which part of the consideration is deferred, in the New World
interest in their results (net of tax) is included in the consolidated Whisky Distillery Pty Limited and Stauning Whisky Holding ApS
income statement below the group’s operating profit. where Diageo acquired minority equity stakes.
Investments in associates and joint ventures are reviewed for
impairment whenever events or circumstances indicate that the (a) An analysis of the movement in the group’s investments in
carrying amount may not be recoverable. The impairment review associates and joint ventures is as follows:
compares the net carrying value with the recoverable amount,
Moët USL and
where the recoverable amount is the higher of the value in use Hennessy others Total
Governance
calculated as the present value of the group’s share of the £ million £ million £ million
associate’s future cash flows and its fair value less costs to sell. Cost less provisions
Associates and joint ventures are initially recorded at cost At 30 June 2014 2,152 1,049 3,201
including transaction costs. Exchange differences (200) (5) (205)
Capital injection – 21 21
Diageo’s principal associate at 30 June 2016 was Moët Hennessy Step acquisitions – (852) (852)
(2015 – Moët Hennessy).
Share of profit after tax 164 11 175
Diageo owns 34% of Moët Hennessy, the spirits and wine
Share of movements in other
subsidiary of LVMH Moët Hennessy – Louis Vuitton SA (LVMH). comprehensive income
LVMH is based in France and is listed on the Paris Stock Exchange. and equity (14) – (14)
Moët Hennessy is also based in France and is a producer and Transfer to assets held for sale – (82) (82)
exporter of champagne and cognac brands. Dividends (148) (35) (183)
A number of joint distribution arrangements have been
Share of tax attributable
established with LVMH in Asia Pacific and France, principally covering to shareholders 56 – 56
distribution of Diageo’s premium brands of Scotch whisky and gin Impairment charge – (41) (41)
and Moët Hennessy’s premium champagne and cognac brands.
At 30 June 2015 2,010 66 2,076
Diageo and LVMH have each undertaken not to engage in any
Exchange differences 318 7 325
champagne or cognac activities competing with those of
Moët Hennessy. The arrangements also contain certain provisions for Additions – 28 28
the protection of Diageo as a non-controlling shareholder in Moët Share of profit after tax 217 4 221
Hennessy. The operations of Moët Hennessy in France are conducted Transfer to asset held for sale(i) – 3 3
through a partnership in which Diageo has a 34% interest and, as a Disposals – (18) (18)
partner, Diageo pays any tax due on its share of the results of the Dividends (167) (6) (173)
partnership to the tax authorities. Share of tax attributable
For the year ended 30 June 2014 Diageo equity accounted for its to shareholders 67 – 67
investment in USL, the leading spirits company in India, as an Other – (1) (1)
associate. On 2 July 2014, with the completion of the tender offer the At 30 June 2016 2,445 83 2,528
group acquired an additional 26% investment in USL taking its
(i) In respect of South African associate interests that were disposed of in the year. The businesses
investment to 54.78% (excluding 2.38% owned by the USL Benefit were reported as asset held for sale at 30 June 2015.
Trust). From 2 July 2014 the carrying value of the associate of
£790 million was derecognised and the group accounted for USL as (b) Income statement information for the three years ended
a subsidiary with 43.91% non-controlling interests. 30 June 2016 and balance sheet information as at 30 June 2016 and Additional information for shareholders
On 27 February 2015, Diageo acquired the 50% of Don Julio B.V. 30 June 2015 of Moët Hennessy is as follows:
that it did not already own and the carrying value of the joint venture
of £40 million was derecognised and the group accounted for Don 2016 2015 2014
Julio B.V. as a subsidiary.
Net sales 3,491 3,215 3,329
On 29 May 2015, Diageo acquired the remaining 50% equity stake
of one of the group’s joint ventures in South Africa that it did not Profit for the year 638 482 722
already own. From that date the carrying value of the joint venture Total comprehensive income 706 588 639
of £22 million was derecognised and the group accounted for it as
a subsidiary.
Moët Hennessy prepares its financial statements under IFRS as 7. Taxation

endorsed by the EU in euros to 31 December each year. The results
are adjusted for alignment to Diageo accounting policies and are a Accounting policies
major part of the Wines & Spirits division of LVMH. The results are Current tax is based on taxable profit for the year. Taxable profit
translated at £1 = €1.34 (2015 – £1 = €1.31; 2014 – £1 = €1.20). is different from accounting profit due to temporary differences
between accounting and tax treatments, and due to items that
2016 2015
£ million £ million are never taxable or tax deductible. Tax benefits are not
Non-current assets 3,832 3,251
recognised unless it is probable that the tax positions are
sustainable. Once considered to be probable, tax benefits are
Current assets 6,277 5,118
reviewed each year to assess whether a provision should be taken
Total assets 10,109 8,369
against full recognition of the benefit on the basis of potential
Non-current liabilities (1,009) (894) settlement through negotiation and/or litigation. Tax provisions
Current liabilities (1,907) (1,562) are included in current liabilities. Interest and penalties on tax
Total liabilities (2,916) (2,456) liabilities are provided for in the tax charge.
Net assets 7,193 5,913 Full provision for deferred tax is made for temporary
differences between the carrying value of assets and liabilities for
(1) Including acquisition fair value adjustments principally in respect of Moët Hennessy’s brands and
translated at £1 = €1.2 (2015 – £1 = €1.41). financial reporting purposes and their value for tax purposes. The
amount of deferred tax reflects the expected recoverable amount
(c) For the year ended 30 June 2014 USL had net sales of £1,188 million and is based on the expected manner of recovery or settlement
and £nil net profit. of the carrying amount of assets and liabilities, using the basis of
taxation enacted or substantively enacted by the balance sheet
(d) Information on transactions between the group and its associates date. Deferred tax assets are not recognised where it is more
and joint ventures is disclosed in note 20. likely than not that the assets will not be realised in the future.
No deferred tax liability is provided in respect of any future
(e) Investments in associates and joint ventures comprise the cost remittance of earnings of foreign subsidiaries where the group is
of shares less goodwill written off on acquisitions prior to 1 July 1998 able to control the remittance of earnings and it is probable that
of £1,132 million (2015 – £974 million), plus the group’s share of post such earnings will not be remitted in the foreseeable future, or
acquisition reserves of £1,396 million (2015 – £1,102 million). where no liability would arise on the remittance.
(f) The associates and joint ventures have not reported any material Critical accounting estimates and judgements
contingent liabilities in their latest financial statements. The group is required to estimate the corporate tax in each of the
many jurisdictions in which it operates. The recognition of tax
benefits and assessment of provisions against tax benefits
requires management judgement. In particular the group is
routinely subject to tax audits in many jurisdictions, which by their
nature are often complex and can take several years to resolve.
Provisions are based on management’s interpretation of country
specific tax law and the likelihood of settlement. However the
actual tax liabilities could differ from the provision and in such
event the group would be required to make an adjustment in a
subsequent period which could have a material impact on the
group’s profit for the year.
The evaluation of deferred tax assets recoverability requires
judgements to be made regarding the availability of future
taxable income.
(a) Analysis of taxation charge for the year
Strategic report
United Kingdom Rest of world Total
2016 2015 2014 2016 2015 2014 2016 2015 2014
£ million £ million £ million £ million £ million £ million £ million £ million £ million
Current tax
Current year 61 75 102 515 381 361 576 456 463
Adjustments in respect of prior years – – (4) 63 (15) (8) 63 (15) (12)
61 75 98 578 366 353 639 441 451
Deferred tax
Origination and reversal of temporary differences 26 (7) (32) (109) 11 27 (83) 4 (5)
Changes in tax rates 6 – 4 1 (1) – 7 (1) 4
Adjustments in respect of prior years 2 10 (22) (69) 12 19 (67) 22 (3)
34 3 (50) (177) 22 46 (143) 25 (4)
Taxation on profit from continuing operations 95 78 48 401 388 399 496 466 447
Governance
(b) Exceptional tax (credits)/charges
The taxation charge includes the following exceptional items:
2016 2015 2014
Sale of businesses (49) – –
Brand impairment (10) – (65)
Disengagement agreements relating to United Spirits Limited 3 – –
Korea settlement – (30) –
Restructuring – (21) (34)
(56) (51) (99)
(c) Taxation rate reconciliation and factors that may affect future tax charges
2016 2015 2014
Profit from continuing operations before taxation 2,858 2,933 2,711
Notional charge at UK corporation tax rate of 20% (2015 – 20.75%; 2014 – 22.5%) 571 608 610
Elimination of notional tax on share of after tax results of associates and joint ventures (44) (36) (56)
Differences in overseas tax rates 50 64 33
Intra-group financing (97) (81) (106)
Non-taxable gains on disposals of businesses (90) (51) –
Step-up gain – (34) (32)
Other tax rate and tax base differences (87) (95) (105)
Other items not chargeable (66) (89) (40)
Impairment 21 9 –
Non-deductible losses on disposals of businesses 24 – –
Other non-deductible exceptional items 31 10 –
Other items not deductible(i) 180 155 154
Changes in tax rates 7 (1) 4
Adjustments in respect of prior years (4) 7 (15) Additional information for shareholders
Tax charge for the year 496 466 447
(i) Other items not-deductible include irrecoverable withholding tax, controlled foreign companies charge and additional states and local taxes.
The table above reconciles the notional taxation charge calculated at the UK tax rate, to the actual total tax charge. As a group operating in
multiple countries, the actual tax rates applicable to profits in those countries are different from the UK tax rate. The impact is shown in the
table above as differences in overseas tax rates. The group’s worldwide business leads to the consideration of a number of important factors
which may affect future tax charges, such as: the levels and mix of profitability in different jurisdictions, transfer pricing regulations, tax rates
imposed and tax regime reforms, acquisitions, disposals, restructuring activities, and settlements or agreements with tax authorities.
The group has a number of ongoing tax audits worldwide for which provisions are recognised based on best estimates and management’s
judgements concerning the ultimate outcome of the audit. As at 30 June 2016 the ongoing audits that are provided for individually are not
expected to result in a material tax liability. The current tax liability of £340 million includes £249 million (2015 – £205 million) of provisions for
tax uncertainties.
Significant ongoing changes in the international tax environment and an increase in global tax audit activity means that tax uncertainties
and associated risks have been gradually increasing. In the medium term, these risks could result in an increase in tax liabilities or adjustments
to the carrying value of deferred tax assets and liabilities. The group is continuously monitoring the position but it is expected that our tax rate
may increase in future years.
(d) Deferred tax assets and liabilities

The amounts of deferred tax accounted for in the consolidated balance sheet comprise the following net deferred tax assets/(liabilities):
Property, Post Other
plant and Intangible employment temporary
equipment assets plans Tax losses differences(i) Total
At 30 June 2014 (126) (1,361) 100 113 155 (1,119)
Exchange differences 11 (79) (1) (5) (6) (80)
Recognised in income statement – continuing operations 1 (55) 14 (30) 45 (25)
Recognised in other comprehensive income and equity – – (73) 25 4 (44)
Acquisition of businesses (16) (446) 2 – (12) (472)
Reclassification – 14 41 – (55) –
Sale of businesses 6 29 (2) – – 33
At 30 June 2015 (124) (1,898) 81 103 131 (1,707)
Exchange differences (18) (283) 28 5 23 (245)
Recognised in income statement – continuing operations 16 (28) 7 (47) 195 143
Recognised in other comprehensive income and equity – – 122 1 11 134
Acquisition of businesses (11) – – – – (11)
Sale of businesses – 1 2 – (1) 2
Reclassification 11 7 – (2) (16) –
At 30 June 2016 (126) (2,201) 240 60 343 (1,684)
(i) Deferred tax on other temporary differences includes items such as the thalidomide provisions, restructuring provisions, share-based payments and intra group sales of products.
After offsetting deferred tax assets and liabilities where appropriate (f) Unrecognised deferred tax liabilities
within territories, the net deferred tax liability comprises: UK legislation largely exempts overseas dividends remitted from UK
2016 2015
tax. A tax liability is more likely to arise in respect of withholding taxes
£ million £ million levied by the overseas jurisdiction. Deferred tax is provided where
Deferred tax assets 298 189 there is an intention to distribute earnings, and a tax liability arises. It
Deferred tax liabilities (1,982) (1,896) is impractical to estimate the amount of unrecognised deferred tax
(1,684) (1,707) liabilities in respect of these unremitted earnings.
The aggregate amount of temporary differences in respect of
investments in subsidiaries, branches, interests in associates and joint
The deferred tax assets of £298 million includes £223 million ventures for which deferred tax liabilities have not been recognised is
(2015 – £113 million) arising in jurisdictions with prior year taxable approximately £13.4 billion (2015 – £14.5 billion).
losses. The majority of the asset is in respect of the United Kingdom
and Ireland, where the amounts arose from timing differences 8. Discontinued operations
on intangible fixed assets and pension funding payments. It is
considered more likely than not that there will be sufficient future Accounting policies
taxable profits to realise these deferred tax assets, most of which Discontinued operations comprise disposal groups where they
can be carried forward indefinitely. represent a major line of business or geographical area of
operations or business activities that the group no longer
(e) Unrecognised deferred tax assets participates in or did not form part of the group’s operations.
Deferred tax assets have not been recognised in respect of the
following tax losses: Discontinued operations in the year ended 30 June 2014 comprised a
charge after taxation of £83 million (£91 million less tax of £8 million)
2016 2015
£ million £ million in respect of the settlement of thalidomide litigation in Australia and
Capital losses – indefinite 71 72 New Zealand and anticipated future payments to thalidomide
Trading losses – indefinite 76 74
organisations.
Trading losses – expiry dates up to 2025 3 2
150 148
Financial statements of the group: Operating assets and liabilities DIAGEO Annual Report 2016 113
OPERATING This section describes the assets used to generate the
Strategic report
ASSETS AND group’s performance and the liabilities incurred.
LIABILITIES Liabilities relating to the group’s financing activities
are included in section ‘Risk management and capital
Introduction structure’ and balance sheet information in respect of
associates, joint ventures and taxation are covered in
section ‘Results for the year’. This section also provides
detailed disclosures on the group’s recent acquisitions
and disposals, performance and financial position of its
defined benefit post employment plans.
Governance
9. Acquisition and sale of businesses and purchase of non-controlling interests
Accounting policies
The consolidated financial statements include the results of the company and its subsidiaries together with the group’s attributable share
of the results of associates and joint ventures. The results of subsidiaries acquired or sold are included in the income statement from, or up
to, the date that control passes.
Business combinations are accounted for using the acquisition method. Identifiable assets, liabilities and contingent liabilities acquired
are measured at fair value at acquisition date. The consideration payable is measured at fair value and includes the fair value of any
contingent consideration.
On the acquisition of a business, or of an interest in an associate or joint venture, fair values, reflecting conditions at the date of
acquisition, are attributed to the net assets including identifiable intangible assets and contingent liabilities acquired. Directly attributable
acquisition costs in respect of subsidiary companies acquired are recognised in other external charges as incurred.
The non-controlling interests on the date of acquisition can be measured either at the fair value or at the non-controlling shareholder’s
proportion of the net fair value of the identifiable assets assumed. This choice is made separately for each acquisition.
Where the group has issued a put option over shares held by a non-controlling interest, the group derecognises the non-controlling
interests and instead recognises a contingent deferred consideration liability for the estimated amount likely to be paid to the non-
controlling interest on the exercise of those options. Movements in the estimated liability in respect of put options are recognised in
retained earnings.
Transactions with non-controlling interests are recorded directly in retained earnings.
For all entities in which the company, directly or indirectly, owns equity a judgement is made to determine whether the investor
controls the investee and therefore should fully consolidate the investee. An assessment is carried out to determine whether the group has
the exposure or rights to the variable returns of the investee and has the ability to affect those returns through its power over the investee.
To establish control an analysis is carried out of the substantive and protective rights that the group and the other investors hold. This
assessment is dependent on the activities and purpose of the investee and the rights of the other shareholders, such as which party
controls the board, executive committee and material policies of the investee. Determining whether the rights that the group holds are
substantive requires management judgement.
Where less than 50% of the equity of an investee is held, and the group holds significantly more voting rights than any other vote holder
or organised group of vote holders this may be an indicator of de facto control. An assessment is needed to determine all the factors
relevant to the relationship with the investee to ascertain whether control has been established and whether the investee should be
consolidated as a subsidiary. Where voting power and returns from an investment are split equally between two entities then the
arrangement is accounted for as a joint venture.
On an acquisition fair values are attributed to the assets and liabilities acquired. This may involve material judgement to determine
these values.
114 DIAGEO Annual Report 2016 Financial statements of the group: Operating assets and liabilities
(a) Acquisition of businesses

Fair value of net assets acquired and cash consideration paid in respect of the acquisition of businesses and the purchase of shares of
non-controlling interests in the three years ended 30 June 2016 were as follows:
Net assets acquired and consideration
2016 2015 2014
Brands and other intangibles 26 1,941 10
Property, plant and equipment – 275 1
Biological assets – 5 –
Investments – 58 –
Inventories – 247 1
Assets and liabilities held for sale – 401 –
Other working capital – 62 1
Current tax (1) (35) –
Deferred tax (11) (472) –
Cash – 64 –
Borrowings – (869) –
Post employment benefit liabilities – (7) –
Fair value of assets and liabilities 14 1,670 13
Goodwill arising on acquisition (14) 1,419 16
Non-controlling interests – (641) (8)
Step acquisitions – (1,113) –
Consideration payable – 1,335 21
Satisfied by:
Cash consideration paid – 1,334 28
Deferred/contingent consideration payable – 1 1
Receivables from non-controlling interests – – (8)
– 1,335 21
Cash consideration paid for investment in USL – 1,118 474
Cash consideration paid for investments in other subsidiaries – 216 28
Cash consideration paid for investments in associates 10 – 2
Cash consideration paid in respect of prior year acquisitions 4 4 14
Capital injection in associates 1 21 7
Cash acquired – (64) –
Deposit (refunded)/paid – (11) 11
Net cash outflow on acquisition of businesses 15 1,284 536
Purchase of shares of non-controlling interests 21 – 37
Total net cash outflow 36 1,284 573
Purchase of non-controlling interest in Ghana

On 7 October 2015, Diageo purchased from Heineken an additional 20% shareholding in Guinness Ghana Breweries Limited (GGBL) for
$32 million (£21 million) which increased Diageo’s shareholding in GGBL from 52.42% to 72.42%. A subsequent rights issue has increased
Diageo’s shareholding in GGBL to 80.4%.
Other
In the year ended 30 June 2016 the change in brands, goodwill, current and deferred tax reflects the finalisation of the fair values of net assets
acquired on the acquisition of a joint venture in South Africa in May 2015.
Prior year acquisitions
Strategic report
In prior years, Diageo has made a number of acquisitions of brands, distribution rights and equity interests in drinks businesses. In the two
years ended 30 June 2015 the following acquisitions have been made:
Fair value of net assets acquired
Cash paid(i) Brands Goodwill Other
£ million £ million £ million £ million Location Principal brands acquired Status
United Spirits 1,825 1,683 1,281 (273) India McDowell’s No1 whisky, Acquisition of a 54.78%
Limited(ii) rum and brandy, Black Dog, equity interest (excluding
Signature, Antiquity and 2.38% owned by the USL
13 May 2013
Bagpiper whisky and other Benefit Trust) in United
to 2 July 2014
Indian whisky, brandy and Spirits Limited with a 43.91%
rum products non-controlling interest. The
group consolidated USL from
2 July 2014.
Don Julio(iii) 192 220 105 (18) Mexico Don Julio tequila Acquisition of the remaining
50% equity interest in
27 February 2015
Don Julio
SJF Holdco and 302 502 115 46 China Shui Jing Fang Chinese Acquisition of a 100%
Governance
Shuijingfang white spirit equity stake in SJF Holdco
which owns a 39.7%
27 January 2007
controlling equity interest
to 2 August 2013
in Shuijingfang. The group
controlled Shuijingfang from
29 June 2012.
Other(iv) 65 36 34 (13)
(i) Includes amounts paid in respect of these acquisitions prior to 30 June 2013.
(ii) Includes transaction costs of £33 million on the initial acquisition of shares in USL when the investment was accounted for as an associate. In addition to the fair value of net assets acquired, the group
recognised a non-controlling interest of £641 million and a step up gain of £192 million.
(iii) In addition to the fair value of net assets acquired, the group derecognised an investment in associate of £40 million and recognised a step up gain of £75 million.
(iv) Other primarily includes acquisitions in the United States and South Africa.
(b) Sale of businesses

The sale consideration received and a summary of the net assets disposed of in respect of the sale of businesses in the year ended
30 June 2016 were as follows:
2016 2015
Jamaica, Wines in
Singapore and United States
Malaysia and Percy Fox Other Total Total
£ million £ million £ million £ million £ million
Sale consideration
Cash received in year 531 418 165 1,114 1,001
(Cash)/overdraft disposed of (14) 1 (1) (14) (17)
Transaction and other directly attributable costs paid (7) (22) (9) (38) (6)
Net cash received 510 397 155 1,062 978
Deferred consideration receivable/(payable) – 15 (1) 14 (3)
510 412 154 1,076 975
Net assets disposed of
Brands – (94) – (94) (144)
Goodwill – (34) (2) (36) (44)
Property, plant and equipment (40) (86) (13) (139) (118)
Biological assets – (70) – (70) –
Investment in associates (18) – – (18) –
Assets and liabilities held for sale – – (113) (113) (404)
Inventories (7) (263) (24) (294) (78)
Other working capital 4 (4) (5) (5) 19
Post employment benefit liabilities (6) 5 – (1) 10
Current tax 1 – – 1 1
Deferred tax 3 – (1) 2 33
Borrowings – – 14 14 –
(63) (546) (144) (753) (725)
Non-controlling interests 24 – – 24 –
Accelerated depreciation and directly attributable costs payable (1) (69) (11) (81) (3)
Exchange recycled from other comprehensive income (13) 12 (50) (51) –
Gain/(loss) on disposal before taxation 457 (191) (51) 215 247
Taxation (7) 54 2 49 –
Gain/(loss) on disposal after taxation 450 (137) (49) 264 247
On 7 October 2015, the group completed the sale of Diageo’s Jamaica, Singapore and Malaysian beer interests to Heineken. In the year ended
30 June 2016 Jamaica beer interests contributed net sales of £41 million, including sales made in respect of country distribution agreements
that were terminated after 7 October 2015, (2015 – £107 million; 2014 – £100 million), operating profit of £7 million (2015 – £24 million; 2014
– £25 million) and profit after taxation of £6 million (2015 – £21 million; 2014 – £21 million). In addition the Singaporian and Malaysian beer
interests contributed £3 million to share of profit of associates (2015 – £13 million; 2014 – £12 million).
On 1 January 2016, Diageo completed the sale of the majority of its wine interests in the United States and its UK based Percy Fox
businesses to Treasury Wine Estates. In addition, in the year ended 30 June 2016 Diageo disposed of its other US wine interests. In the year
ended 30 June 2016 the wine businesses, including the ending of distribution agreements in respect of wine brands in the United Kingdom
that terminated post 1 January 2016, contributed net sales of £161 million (2015 – £343 million; 2014 – £307 million), operating profit of
£12 million (2015 – £58 million; 2014 – £64 million) and profit after taxation of £4 million (2015 – £31 million; 2014 – £39 million).
Other includes the sale of the group’s South African associate interests disposed of on 1 December 2015 which were disclosed as
assets held for sale at 30 June 2015. Other also includes the group’s shareholding in Central Glass Industries Limited (CGI) disposed of on
30 September 2015, the Bouvet wine business in France and the group’s subsidiary in Argentina.
In the year ended 30 June 2015 the group disposed of the entire share capital of The Old Bushmills Distillery Company Limited to Jose
Cuervo Overseas. The comparative also includes businesses disposed of following the acquisition of USL including the net cash receipt of
£391 million on the sale of the Whyte and Mackay Group on 31 October 2014 and the proceeds and net assets following the disposal of
Gleneagles Hotels Limited on 30 June 2015.
10. Intangible assets
Strategic report
Accounting policies
Acquired intangible assets are held on the consolidated balance sheet at cost less accumulated amortisation and impairment losses.
Acquired brands and other intangible assets are initially recognised at fair value when they are controlled through contractual or other legal
rights, or are separable from the rest of the business, and the fair value can be reliably measured. Where these assets are regarded as having
indefinite useful economic lives, they are not amortised.
Goodwill represents the excess of the aggregate of the consideration transferred, the value of any non-controlling interests and the fair
value of any previously held equity interest in the subsidiary acquired over the fair value of the identifiable net assets acquired. Goodwill
arising on acquisitions prior to 1 July 1998 was eliminated against reserves, and this goodwill has not been reinstated. Goodwill arising
subsequent to 1 July 1998 has been capitalised.
Amortisation and impairment of intangible assets is based on their useful economic lives and are amortised on a straight-line basis over
those lives and reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.
Goodwill and intangible assets that are regarded as having indefinite useful economic lives are not amortised and are reviewed for
impairment at least annually or when there is an indication that the assets may be impaired. Impairment reviews compare the net carrying
value with the recoverable amount (where recoverable amount is the higher of fair value less cost to sell and value in use). Amortisation
and any impairment write downs are charged to other operating expenses in the income statement.
Governance
Computer software is amortised on a straight-line basis to estimated residual value over its expected useful life. Residual values and
useful lives are reviewed each year. Subject to these reviews, the estimated useful lives are up to eight years.
Critical accounting estimates and judgements

Assessment of the recoverable amount of an intangible asset, the useful economic life of an asset, or that an asset has an indefinite life,
requires management judgement.
Impairment reviews are carried out to ensure that intangible assets, including brands, are not carried at above their recoverable
amounts. The tests are dependent on management’s estimates and judgements, in particular in relation to the forecasting of future cash
flows, the discount rates applied to those cash flows and the expected long term growth rates. Such estimates and judgements are subject
to change as a result of changing economic conditions and actual cash flows may differ from forecasts.
Other Computer
Brands Goodwill intangibles software Total
Cost
At 30 June 2014 5,839 1,213 1,121 493 8,666
Exchange differences 157 (57) 96 (7) 189
Acquisition of businesses 1,903 1,419 38 – 3,360
Sale of businesses (144) (44) – – (188)
Other additions – – 1 40 41
Other disposals – – – (15) (15)
At 30 June 2015 7,755 2,531 1,256 511 12,053
Exchange differences 969 286 216 32 1,503
Sale of businesses (94) (36) – (1) (131)
Acquisitions(i) 26 (14) – – 12
Other additions – – 1 42 43
Other disposals – – (1) (16) (17)
At 30 June 2016 8,656 2,767 1,472 568 13,463
Amortisation and impairment
At 30 June 2014 432 12 56 275 775
Exchange differences 3 (2) – (2) (1) Additional information for shareholders
Amortisation for the year – – 4 56 60
At 30 June 2015 435 10 60 317 822
Exchange differences 80 16 3 23 122
Amortisation for the year – – 5 51 56
Exceptional impairment 62 42 – – 104
At 30 June 2016 577 68 68 380 1,093
Carrying amount
At 30 June 2016 8,079 2,699 1,404 188 12,370
At 30 June 2015 7,320 2,521 1,196 194 11,231
At 30 June 2014 5,407 1,201 1,065 218 7,891
(i) Acquisitions represent the finalisation of the fair values of an acquisition completed in the year ended 30 June 2015.
(a) Brands
At 30 June 2016, the principal acquired brands, all of which are regarded as having indefinite useful economic lives, are as follows:
2016 2015
Principal markets £ million £ million
Crown Royal whisky United States 1,101 933
McDowell’s No.1 whisky, rum and brandy India 1,086 972
Captain Morgan Global 903 765
Johnnie Walker whisky Global 625 625
Smirnoff vodka Global 620 525
Windsor Premier whisky Korea 568 494
Yenì Raki Turkey 446 403
Shui Jing Fang Chinese white spirit Greater China 256 232
Don Julio tequila United States 207 206
Signature whisky India 204 183
Bell’s whisky United Kingdom 179 179
Black Dog whisky India 172 154
Antiquity whisky India 169 151
Seagram’s 7 Crown whiskey United States 168 142
Zacapa rum Global 144 122
Seagram’s VO whiskey United States 143 121
Gordon’s gin Europe 119 119
Bagpiper whisky India 117 104
Old Parr whisky Global 106 83
Other brands 746 807
8,079 7,320
The brands are protected by trademarks, which are renewable (c) Other intangibles
indefinitely, in all of the major markets where they are sold. There are Other intangibles principally comprise distribution rights. Diageo
not believed to be any legal, regulatory or contractual provisions that owns the global distribution rights for Ketel One vodka products
limit the useful lives of these brands. The nature of the premium in perpetuity, and the Directors believe that it is appropriate to
drinks industry is that obsolescence is not a common issue, with treat these rights as having an indefinite life for accounting purposes.
indefinite brand lives being commonplace, and Diageo has a number The carrying value at 30 June 2016 was £1,354 million (2015 –
of brands that were originally created more than 100 years ago. £1,147 million).
Accordingly, the Directors believe that it is appropriate that the
brands are treated as having indefinite lives for accounting purposes (d) Impairment testing
and are therefore not amortised. Impairment tests are performed annually, or more frequently if events
or circumstances indicate that the carrying amount may not be
(b) Goodwill recoverable. Recoverable amounts are calculated based on the value
For the purposes of impairment testing, goodwill has been attributed in use approach. The value in use calculations are based on
to the following cash-generating units: discounted forecast cash flows using the assumption that cash flows
2016 2015
continue in perpetuity at the terminal growth rate of each country or
£ million £ million region. The individual brands and their associated tangible fixed
North America 217 217 assets are aggregated and tested as a cash-generating unit. Separate
Europe, Russia and Turkey tests are carried out for each cash-generating unit (brand and
– Europe (excluding Russia and Turkey) 147 106 attributable tangible fixed assets) and for each of the 21 markets.
– Turkey 452 409
The goodwill is attributed to the markets.
Africa – Africa Regional Markets 96 86
Cash flows
Latin America and Caribbean – Mexico 99 98
Cash flows are forecast for each cash-generating unit for the financial
Asia Pacific year, which is approved by management and reflects expectations of
– Greater China 130 117 sales growth, operating costs and margin, based on past experience
– India 1,475 1,320 and external sources of information.
Other cash-generating units 83 168
2,699 2,521 Discount rate
The discount rates used are the weighted average cost of capital
which reflects the returns on government bonds specific to the
Goodwill has arisen on the acquisition of businesses and includes cash-generating units to which the goodwill is attributed or the
synergies arising from cost savings, the opportunity to utilise Diageo’s countries where the brands are sold or returns on government bonds
distribution network to leverage marketing of the acquired products issued by triple ‘A’ rated countries with a maturity of ten years, and
and the extension of the group’s portfolio of brands in new markets an equity risk premium adjusted for specific industry. Further risk
around the world.
premiums are applied according to management’s assessment of The table below shows the headroom at 30 June 2016 and the
Strategic report
the risks in respect of the individual cash flows. The group applies impairment charge that would be required if the assumptions in the
post-tax discount rates to post-tax cash flows as the valuation calculation of their value in use were changed:
calculated using this method closely approximates to applying 1ppt 10%
pre-tax discount rates to pre-tax cash flows. decrease in 1ppt decrease in
terminal increase in annual cash
Headroom growth rate discount rate flow(i)
Long term growth rate, period of growth and terminal growth rate £ million £ million £ million £ million
The terminal growth rates applied at the end of the forecast period India 93 (372) (493) (361)
are the long term annual inflation rate of the country obtained from Greater China 60 – (13) (12)
external sources adjusted to take into account circumstances specific Meta 9 – – (11)
to the group. For some intangible assets, management expects to
achieve growth, driven by Diageo’s sales, marketing and distribution (i) 20% decrease in annual cash flow was considered as reasonable change for Meta.
expertise, which is significantly in excess of the terminal growth rates

for the applicable countries or regions. In these circumstances, the It remains possible that changes in assumptions could arise in excess
recoverable amount is calculated based on a five-year detailed plan of those indicated in the table above.
and extended by up to an additional ten years using the annual For all intangibles with an indefinite life, other than the cash-
growth rate of the real gross domestic product (GDP) of the country generating units mentioned above, management has concluded that
Governance
or region aggregated with its inflation rate, adjusted to take into no reasonable possible change in the key assumptions on which it
account circumstances specific to the group. In the calculation of the has determined the recoverable amounts would cause their carrying
terminal value, a maximum of the long term annual inflation rate of values to exceed their recoverable amounts.
the country is used as the terminal growth rate.
For goodwill, these assumptions are based on the cash- 11. Property, plant and equipment
generating unit or group of units to which the goodwill is attributed.
Accounting policies
For brands, they are based on a weighted average taking into
Land and buildings are stated at cost less accumulated
account the country or countries where sales are made.
depreciation. Freehold land is not depreciated. Leaseholds are
The pre-tax discount rates and terminal growth rates used for
depreciated over the unexpired period of the lease. Other
impairment testing are as follows:
property, plant and equipment are depreciated on a straight-line
2016 2015 basis to estimated residual values over their expected useful lives,
Pre-tax Terminal Pre-tax Terminal and these values and lives are reviewed each year. Subject to
discount growth discount growth
rate(i) rate rate(i) rate these reviews, the estimated useful lives fall within the following
% % % % ranges: buildings – 10 to 50 years; within plant and equipment
North America – casks and containers – 15 to 50 years; other plant and equipment
9 2
United States 9 2 – 5 to 25 years; fixtures and fittings – 5 to 10 years; and returnable
Europe, Russia and Turkey bottles and crates – 5 to 10 years.
– Europe 9 2 10 2 Reviews are carried out if there is an indication that assets may
– Turkey 16 5 15 5 be impaired, to ensure that property, plant and equipment are not
Africa carried at above their recoverable amounts.
– Africa Regional Markets 20 5 21 6
– South Africa 18 5 19 5 Government grants
Government grants are not recognised until there is reasonable
Latin America and
Caribbean assurance that the group will comply with the conditions
– Brazil 13 5 13 5 pursuant to which they have been granted and that the grants
will be received. Government grants in respect of property,
– Mexico 18 3 20 3
plant and equipment are deducted from the asset that they
Asia Pacific
relate to, reducing the depreciation expense charged to the
– Korea 10 3 9 3
income statement.
– Greater China 10 3 11 3
– India(ii) 14 6 19 6 Leases
(i) Before additional risk premiums.
Where the group has substantially all the risks and rewards of
(ii) Post-tax discount rates for India as at 30 June 2016 and 30 June 2015 were 12%. ownership of an asset subject to a lease, the lease is treated as a
finance lease. Assets held under finance leases are recognised as
In the year ended 30 June 2016, an impairment charge in respect assets of the group at their fair value at the inception of the lease.
of the Ypióca brand, the related fixed assets and goodwill allocated The corresponding liability to the lessor is included in other
to the Paraguay, Uruguay and Brazil (PUB) cash-generating unit of financial liabilities on the consolidated balance sheet. Lease
£62 million, £14 million and £42 million, respectively was charged to payments are apportioned between interest expense and a
other operating expenses. Forecast cash flow assumptions have been reduction of the lease obligation so as to achieve a constant rate
reduced principally due to a challenging economic environment in of interest on the remaining balance of the liability. Other leases
Brazil and significant adverse changes in local tax regulation. are treated as operating leases, with payments and receipts
taken to the income statement on a straight-line basis over
(e) Sensitivity to change in key assumptions the life of the lease.
Impairment testing for the year ended 30 June 2016 has identified
the following cash-generating units as being sensitive to reasonably
possible changes in assumptions.
Fixtures Returnable
Land and Plant and and bottles and Under
buildings equipment fittings crates construction Total
Cost
At 30 June 2014 1,333 3,219 120 477 353 5,502
Exchange differences (40) (119) (5) (44) (11) (219)
Acquisition of businesses 148 110 4 – 13 275
Sale of businesses (105) (73) (7) – (1) (186)
Other additions 51 181 13 35 297 577
Other disposals (13) (66) (3) (20) (1) (103)
Transfers 73 210 3 16 (302) –
At 30 June 2015 1,447 3,462 125 464 348 5,846
Exchange differences 107 243 11 37 18 416
Sale of businesses (119) (164) (3) (18) (18) (322)
Other additions 30 137 7 23 274 471
Other disposals (58) (98) (22) (11) (8) (197)
Transfers 76 203 4 21 (304) –
At 30 June 2016 1,483 3,783 122 516 310 6,214
Depreciation
At 30 June 2014 391 1,298 81 295 4 2,069
Exchange differences (8) (64) (6) (28) – (106)
Depreciation charge for the year 46 215 13 42 – 316
Exceptional accelerated depreciation and impairment – 23 – – – 23
Sale of businesses (20) (43) (5) – – (68)
Other disposals (6) (56) – (16) – (78)
At 30 June 2015 403 1,373 83 293 4 2,156
Exchange differences 36 113 8 25 – 182
Depreciation charge for the year 46 200 12 41 – 299
Exceptional accelerated depreciation and impairment 4 10 – – – 14
Non-operating exceptional accelerated depreciation – 8 – – – 8
Sale of businesses (65) (105) (3) (10) – (183)
Other disposals (24) (86) (20) (9) (4) (143)
At 30 June 2016 400 1,513 80 340 – 2,333
Carrying amount
At 30 June 2016 1,083 2,270 42 176 310 3,881
At 30 June 2015 1,044 2,089 42 171 344 3,690
At 30 June 2014 942 1,921 39 182 349 3,433
(a) The net book value of land and buildings comprises freeholds of £1,034 million (2015 – £975 million), long leaseholds of £28 million
(2015 – £20 million) and short leaseholds of £21 million (2015 – £49 million). Depreciation was not charged on £203 million (2015 – £144 million)
of land.
(b) At 30 June 2016, tangible fixed assets held under finance leases amounted to £264 million (2015 – £294 million), principally in respect of
plant and equipment. Depreciation on assets held under finance leases was £19 million (2015 – £17 million).
(c) Property, plant and equipment is net of a government grant of £139 million (2015 – £118 million) received in prior years in respect of the
construction of a rum distillery in the United States Virgin Islands.
12. Other investments 13. Post employment benefits
Strategic report
Accounting policies Accounting policies
Available-for-sale investments are non-derivative financial assets The group’s principal pension funds are defined benefit plans.
that are either designated as such upon initial recognition or not In addition, the group has defined contribution plans, unfunded
classified in any of the other financial assets categories. They are post employment medical benefit liabilities and other unfunded
included in non-current assets. Subsequent to initial measurement, defined benefit post employment liabilities. For post employment
available-for-sale investments are stated at fair value. Gains and plans, other than defined contribution plans, the amount charged
losses arising from the changes in fair value are recognised in other to operating profit is the cost of accruing pension benefits
comprehensive income until the investment is disposed of or promised to employees over the year, plus any changes arising on
impaired, when the accumulated gains and losses are recycled to benefits granted to members by the group during the year. Net
the income statement. Interest and dividends from available-for- finance charges comprise the net deficit/asset on the plans at the
sale investments are recognised in the consolidated income beginning of the financial year, adjusted for cash flows in the year,
statement. multiplied by the discount rate for plan liabilities. The differences
Loans receivable are non-derivative financial assets with fixed between the fair value of the plans’ assets and the present value
or determinable payments that are not quoted on an active of the plans’ liabilities are disclosed as an asset or liability on the
market. They are subsequently measured at amortised cost using consolidated balance sheet. Any differences due to changes in
Governance
the effective interest method less allowance for impairment. assumptions or experience are recognised in other
Allowances are made where there is evidence of a risk of non- comprehensive income. The amount of any pension fund asset
payment taking into account ageing, previous experience and recognised on the balance sheet is limited to any future refunds
general economic conditions. from the plan or the present value of reductions in future
contributions to the plan.
Loans (a) Others Total
Contributions payable by the group in respect of defined
£ million £ million £ million contribution plans are charged to operating profit as incurred.
Cost less allowances or fair value
At 30 June 2014 56 7 63 Critical accounting estimates and judgements
Exchange differences (2) 1 (1) Application of IAS 19 requires the exercise of judgement in
Acquisition of businesses – 58 58
relation to various assumptions including future pay rises, inflation
and discount rates and employee and pensioner demographics.
Other additions 27 – 27
Diageo determines the assumptions on a country by country
Repayments and disposals (25) – (25)
basis in conjunction with its actuaries, and believes these
Fair value adjustment – 20 20 assumptions to be in line with best practice, but the application
Transfer to assets held for sale (33) – (33) of different assumptions could have a significant effect on the
At 30 June 2015 23 86 109 amounts reflected in the income statement, other comprehensive
Exchange differences 2 2 4 income and balance sheet. There may be also interdependency
Additions (b) 95 – 95 between some of the assumptions.
Repayments and disposals (c) (4) (89) (93)
Fair value adjustment – 9 9 (a) Post employment benefit plans
Provision charged during the The group operates a number of pension plans throughout the
year (b) (93) – (93) world, devised in accordance with local conditions and practices.
At 30 June 2016 23 8 31 The majority of the plans are defined benefit plans and are funded by
payments to separately administered trusts or insurance companies.
The group also operates a number of plans that are generally
(a) At 30 June 2016, loans comprise £21 million (2015 – £21 million; unfunded, primarily in the United States, which provide employees
2014 – £23 million) of loans to customers and other third parties, after post employment medical costs.
allowances of £98 million (2015 – £7 million; 2014 – £9 million), and The principal plans are in the United Kingdom, Ireland and the
£2 million (2015 – £2 million; 2014 – £33 million) of loans to associates. United States where benefits are based on employees’ length of
service and salary at retirement. All valuations were performed by
(b) Additions include a loan of $135 million (£92 million) provided by independent actuaries using the projected unit credit method to
Standard Chartered Bank (SCB) to Watson Limited and guaranteed by determine pension costs. The most recent valuations of the
a subsidiary of the group. The loan became due in May 2015 and was significant defined benefit plans were carried out as follows:
paid to SCB by Diageo in January 2016. The amount receivable in
Principal plans Date of valuation
respect of the guarantee has been fully provided for. See note 18(a).
United Kingdom (i)
1 April 2015
(c) On 7 July 2015, Diageo sold its investment in United Breweries Ireland(ii) 31 December 2015
Limited, a company quoted on the Indian stock exchange, for a United States 1 January 2015
consideration of £89 million.
(i) The Diageo Pension Scheme (the UK Scheme) closed to new members in November 2005.
Employees who have joined Diageo in the United Kingdom since the defined benefit scheme
closed have been eligible to become members of the Diageo Lifestyle Plan (a cash balance
defined benefit pension plan).
(ii) The triennial valuation of the Guinness Ireland Group Pension Scheme in Ireland (the Irish Scheme)
as at 31 December 2015 is in progress and the result of this valuation is expected to be agreed by
Diageo and the trustee later in calendar year 2016. The Irish Scheme closed to new members in
May 2013. Employees who have joined Diageo in Ireland since the defined benefit scheme closed
have been eligible to become members of Diageo administered defined contribution plans.
The assets of the UK and Irish pension plans are held in separate The movement in the net deficit for the two years ended
trusts administered by trustees who are required to act in the best 30 June 2016 is set out below:
interests of the plans’ beneficiaries. For the UK Scheme, the trustee Plan Plan Net
is Diageo Pension Trust Limited. As required by legislation, one-third assets liabilities deficit
of the directors of the Trust are nominated by the members of the
UK Scheme, member nominated directors are appointed from both At 30 June 2014 7,480 (7,953) (473)
the pensioner member community and the active member Exchange differences (144) 177 33
community. For the Irish Scheme Diageo Ireland makes four Acquisition of businesses 33 (40) (7)
nominations and appoints three further candidates nominated Sale of businesses (20) 30 10
by representative groupings. Charge before taxation 290 (417) (127)
The amounts charged to the consolidated income statement Other comprehensive
for the group’s defined benefit post employment plans and the income/(loss)(i) 411 (288) 123
consolidated statement of comprehensive income for the three Contributions by the group 184 – 184
years ended 30 June 2016 are as follows: Employee contributions 7 (7) –
2016 2015 2014 Benefits paid (358) 358 –
At 30 June 2015 7,883 (8,140) (257)
Current service cost and Exchange differences 328 (463) (135)
administrative expenses (112) (120) (118)
Sale of businesses (38) 37 (1)
Past service gains 1 3 –
Charge before taxation 275 (390) (115)
Gains on curtailments and
settlements 1 3 26 Other comprehensive
income/(loss)(i) 61 (913) (852)
Charge to operating profit (110) (114) (92)
Contributions by the group 169 – 169
Net finance charge in respect of
post employment plans (5) (13) (12) Employee contributions 6 (6) –
Charge before taxation(i) (115) (127) (104) Benefits paid (428) 428 –
Actual returns less amounts At 30 June 2016 8,256 (9,447) (1,191)
included in finance income 61 411 306
(i) Excludes surplus restriction.
Experience gains 91 103 24

Changes in financial assumptions (1,066) (400) (453) The plan assets and liabilities by type of post employment benefit
Changes in demographic and country is as follows:
assumptions 62 9 (49)
2016 2015
Other comprehensive income/
(loss) (852) 123 (172) Plan Plan Plan Plan
assets liabilities assets liabilities
Changes in the surplus restriction – – 3 £ million £ million £ million £ million
Total other comprehensive Pensions
income/(loss) (852) 123 (169)
United Kingdom 6,047 (6,190) 5,922 (5,621)
(i) The charge before taxation comprises: Ireland 1,472 (2,149) 1,295 (1,554)
2016 2015 2014 United States 474 (508) 401 (420)
£ million £ million £ million Other 194 (240) 212 (242)
United Kingdom (50) (62) (39) Post employment medical 2 (260) 1 (218)
Ireland (19) (22) (28) Other post employment 67 (100) 52 (85)
United States (27) (24) (25) 8,256 (9,447) 7,883 (8,140)
Other (19) (19) (12)
(115) (127) (104)
The balance sheet analysis of the post employment plans is
as follows:
In addition to the charge in respect of defined benefit post 2016 2015
employment plans, contributions to the group’s defined contribution Non- Non- Non- Non-
plans were £16 million (2015 – £15 million; 2014 – £15 million). current current current current
assets(i) liabilities assets(i) liabilities
£ million £ million £ million £ million
Funded plans 55 (997) 436 (447)
Unfunded plans – (251) – (248)
55 (1,248) 436 (695)
(i) Includes surplus restriction of £2 million (2015 – £2 million).

(b) Principal risks, and assumptions
Strategic report
The material post employment plans are not exposed to any unusual, entity specific or scheme specific risks but there are general risks:
Inflation – the majority of the plans’ obligations are linked to inflation. Higher inflation will lead to increased liabilities which is partially offset
by holdings of inflation linked gilts and swaps and the plans provide for caps on the level of inflationary increases.
Interest rate – The plan liabilities are determined using discount rates derived from yields on AA-rated corporate bonds. A decrease in corporate
bond yields will increase plan liabilities though this will be partially offset by an increase in the value of the bonds held by the post
employment plans.
Mortality – The majority of the obligations are to provide benefits for the life of the members and their partners so any increase in life
expectancy will result in an increase in the plans’ liabilities.
Asset returns – Assets held by the pension plans are invested in a diversified portfolio of equities, bonds and other assets. Volatility in asset
values will lead to movements in the net asset/(deficit) reported in the consolidated balance sheet for post employment plans which in
addition will also impact the post employment expense in the consolidated income statement.
Governance
The following weighted average assumptions were used to determine the group’s deficit/surplus in the main post employment plans at
30 June in the relevant year. The assumptions used to calculate the charge/credit in the consolidated income statement for the year ended
30 June are based on the assumptions disclosed as at the previous 30 June.
United Kingdom Ireland United States(i)
2016 2015 2014 2016 2015 2014 2016 2015 2014
% % % % % % % % %
Rate of general increase in salaries(ii) 4.0 4.4 4.4 2.8 3.1 2.5 – – –
Rate of increase to pensions in payment 3.1 3.4 3.5 1.6 1.7 1.7 – – –
Rate of increase to deferred pensions 1.8 2.2 2.3 1.4 1.6 1.5 – – –
Discount rate for plan liabilities 2.9 3.8 4.2 1.4 2.6 3.0 3.5 4.3 4.2
Inflation – CPI 1.8 2.2 2.3 1.4 1.6 1.5 1.4 1.7 2.1
Inflation – RPI 2.8 3.2 3.3 – – – – – –
(i) The salary increase assumption in the United States is not a significant assumption as only a minimal amount of members’ pension entitlement is dependent on a member’s projected final salary.
(ii) The salary increase assumptions include an allowance for age related promotional salary increases.
For the main UK and Irish pension funds, the table below illustrates the expected age at death of an average worker who retires currently at
the age of 65, and one who is currently aged 45 and subsequently retires at the age of 65:
United Kingdom(i) Ireland(ii) United States
2016 2015 2014 2016 2015 2014 2016 2015 2014
Age Age Age Age Age Age Age Age Age
Retiring currently at age 65
Male 86.4 86.6 86.4 86.2 86.0 85.9 86.3 86.7 86.6
Female 88.3 88.5 88.4 88.9 88.7 88.6 88.3 88.9 88.8
Currently aged 45, retiring at age 65
Male 88.6 88.8 88.9 89.1 88.9 88.8 88.0 88.4 88.3
Female 91.2 91.4 91.0 91.8 91.6 91.5 89.9 90.6 90.5
(i) Based on the CMI’s series of mortality tables with scaling factors based on the experience of the plan and where people live, with suitable future improvements.
(ii) Based on the ‘00’ series of mortality tables with scaling factors based on the experience of the plan and with suitable future improvements.
For the significant assumptions, the following sensitivity analyses give an estimate of the potential impacts on the consolidated income Additional information for shareholders
statement for the year ended 30 June 2016 and on the plan liabilities at 30 June 2016:
United Kingdom Ireland United States and other
Profit Profit Profit Profit Profit Profit
before after Plan before after Plan before after Plan
taxation taxation liabilities(i) taxation taxation liabilities(i) taxation taxation liabilities(i)
£ million £ million £ million £ million £ million £ million £ million £ million £ million
Effect of 0.5% increase in discount rate 23 18 489 4 3 193 2 1 38
Effect of 0.5% decrease in discount rate (21) (17) (560) (3) (3) (224) (1) (1) (39)
Effect of 0.5% increase in inflation (20) (16) (429) (5) (4) (136) (1) (1) (17)
Effect of 0.5% decrease in inflation 17 14 387 4 3 149 1 1 15
Effect of one year increase in life expectancy (9) (7) (272) (2) (2) (88) (1) (1) (21)
(i) The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps entered into by the pension plans.
(1) The sensitivity analyses above have been determined based on reasonably possible changes of the respective assumptions and may not be representative of the actual change. Each sensitivity is calculated
on a change in the key assumption while holding all other assumptions constant. The sensitivity to inflation includes the impact on all inflation linked assumptions (e.g. pension increases and salary
increases where appropriate).
(c) Investment and hedging strategy movements in the liabilities of the plans. At 30 June 2016,
The investment strategy for the group’s funded post employment approximately 27% and 80% (2015 – 35% and 79%) of the UK
plans is decided locally by the trustees of the plan and/or Diageo, as Scheme’s liabilities were hedged against future movements in
appropriate, and takes account of the relevant statutory interest rates and inflation, respectively, through the combined effect
requirements. The objective of the investment strategy is to achieve of bonds and swaps. At 30 June 2016, approximately 28% and 60%
a target rate of return in excess of the movement on the liabilities, (2015 – 32% and 59%) of the Irish Scheme’s liabilities were hedged
while taking an acceptable level of investment risk relative to the against future movements in interest rates and inflation, respectively,
liabilities. This objective is implemented by using the funds of the through the combined effect of bonds and swaps.
plans to invest in a variety of asset classes that are expected over the The discount rates used are based on the yields of high quality
long term to deliver a target rate of return. The majority of the fixed income investments. For the UK plans, which represent
investment strategies have significant amounts allocated to equities, approximately 66% of total plan liabilities, the discount rate is
with the intention that this will result in the ongoing cost to the determined by reference to the yield curves of AA-rated corporate
group of the post employment plans being lower over the long term, bonds for which the timing and amount of cash outflows are similar
within acceptable boundaries of risk. Significant amounts are to those of the plans. A similar process is used to determine the
invested in bonds in order to provide a natural hedge against discount rates used for the non-UK plans.
An analysis of the fair value of the plan assets is as follows:

2016 2015
United United
United States and United States and
Kingdom Ireland other Total Kingdom Ireland other Total
Equities
Quoted 992 433 253 1,678 812 395 254 1,461
Unquoted and private equity 321 3 20 344 297 2 18 317
Bonds
Fixed-interest government 206 158 46 410 178 117 37 332
Inflation-linked government 977 178 – 1,155 826 133 9 968
Investment grade corporate 980 225 314 1,519 861 210 251 1,322
Non-investment grade 219 43 12 274 265 31 14 310
Loan securities 602 140 – 742 614 123 – 737
Repurchase agreements 2,000 – – 2,000 1,980 – – 1,980
Liability driven investment (LDI) 114 24 – 138 80 20 – 100
Property – unquoted 670 108 1 779 665 83 10 758
Hedge funds – 142 – 142 – 122 – 122
Interest rate and inflation swaps (1,007) 15 – (992) (801) 50 – (751)
Cash and other (27) 3 91 67 145 9 73 227
Total bid value of assets 6,047 1,472 737 8,256 5,922 1,295 666 7,883
(1) The asset classes include some cash holdings that are temporary. This cash is likely to be invested imminently and so has been included in the asset class where it is anticipated to be invested in the
long term.
(2) Within the Irish Scheme’s plan assets above there is £0.6 million (2015 – £0.6 million) invested in the ordinary shares of Diageo plc.
Total cash contributions by the group to all post employment plans interest in the partnership. If the UK Scheme is in surplus at an
in the year ending 30 June 2017 are estimated to be approximately actuarial triennial valuation without allowing for the value of the PFP,
£200 million. then Diageo can exit the PFP with the agreement of the trustees. The
group has also agreed to make conditional contributions if the deficit
(d) Deficit funding arrangements at the 2018 actuarial triennial valuation is in excess of £84 million.
UK plans These additional contributions would be payable to the UK Scheme
In the year ended 30 June 2011 the group established a Pension by 31 March 2019, or within one month of completion of the 2018
Funding Partnership (PFP) in respect of the UK Scheme. Whisky valuation if later.
inventory was transferred into the partnership but the group retains
control over the partnership which at 30 June 2016 held inventory Irish plans
with a book value of £607 million (2015 – £663 million). The The group has also agreed a deficit funding arrangement with the
partnership is fully consolidated in the group financial statements. trustees of the Irish Scheme under which it contributes to the Irish
The UK Scheme has a limited interest in the partnership, and as a Scheme €21 million (£16 million) per annum until the year ending
partner, is entitled to a distribution from the profits of the partnership 30 June 2029. The agreement also provides for additional cash
which for the year ended 30 June 2016 was £25 million (2015 – contributions into escrow of up to €188 million (£140 million) if an
£25 million) and is expected to be approximately the same equivalent reduction in the deficit is not achieved over the 18 year
amount for the next eight years. period from 2010 to 2028. As part of this funding plan, Diageo has
In 2024 the group will be required, dependent upon the funding granted to the Irish Scheme a contingent asset comprising
position of the UK Scheme at that time, to pay an amount expected mortgages over certain land and buildings and fixed and floating
to be no greater than the deficit at that time, up to a maximum of charges over certain receivables of the group up to a value of
£430 million in cash, to the UK Scheme to buy out the UK Scheme’s €200 million (£149 million).
(e) Timing of benefit payments
Strategic report
The following table provides information on the timing of the benefit payments and the average duration of the defined benefit obligations
and the distribution of the timing of benefit payments:
United Kingdom Ireland United States
2016 2015 2016 2015 2016 2015
Maturity analysis of benefits expected to be paid
Within one year 272 233 74 70 61 42
Between 1 to 5 years 998 802 359 344 175 149
Between 6 to 15 years 2,724 2,501 702 696 387 337
Between 16 to 25 years 2,530 2,841 662 672 266 237
Beyond 25 years 4,210 6,360 1,121 1,199 253 229
Total 10,734 12,737 2,918 2,981 1,142 994
years years years years years years
Average duration of the defined benefit obligation 18 17 20 18 11 11
Governance
The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including inflation. They are
disclosed undiscounted and therefore appear large relative to the discounted value of the plan liabilities recognised in the consolidated
balance sheet. They are in respect of benefits that have accrued at the balance sheet date and make no allowance for any benefits
accrued subsequently.
(f) Related party disclosures

Information on transactions between the group and its pension plans is given in note 20.
14. Working capital (a) Inventories

2016 2015
Accounting policies £ million £ million
Inventories are stated at the lower of cost and net realisable value. Raw materials and consumables 301 333
Cost includes raw materials, direct labour and expenses, an
Work in progress 49 66
appropriate proportion of production and other overheads, but
Maturing inventories 3,647 3,586
not borrowing costs. Cost is calculated at the weighted average
cost incurred in acquiring inventories. Maturing inventories which Finished goods and goods for resale 582 589
are retained for more than one year are classified as current assets, 4,579 4,574
as they are expected to be realised in the normal operating cycle.
Trade and other receivables are initially recognised at fair value Maturing inventories include whisk(e)y, rum, wines and Chinese white
less transaction costs and subsequently carried at amortised costs spirits. The following amounts of inventories are expected to be
less any allowance for discounts and doubtful debts. utilised after more than one year:
Trade and other payables are initially recognised at fair
2016 2015
value including transaction costs and subsequently carried at £ million £ million
amortised costs.
Raw materials and consumables 27 55
Provisions are liabilities of uncertain timing or amount. A
Maturing inventories 3,180 2,988
provision is recognised if, as a result of a past event, the group has
a present legal or constructive obligation that can be estimated 3,207 3,043
reliably, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Provisions are calculated Inventories are disclosed net of provisions for obsolescence, an
on a discounted basis. The carrying amounts of provisions are analysis of which is as follows:
reviewed at each balance sheet date and adjusted to reflect the
2016 2015
current best estimate. £ million £ million
Balance at beginning of the year 53 52

Exchange differences 5 (2)
Income statement charge 33 29
Utilised (15) (25)
Sale of businesses (3) (1)
73 53
(b) Trade and other receivables (d) Provisions

2016 2015 Thalidomide Restructuring Other Total
Current Non-current Current Non-current
assets assets assets assets At 30 June 2015 191 49 103 343
Exchange
Trade receivables 2,154 1 1,933 – differences 2 – 20 22
Interest receivable 20 – 23 – Provisions charged
Other receivables 281 36 297 38 during the year – – 100 100
Prepayments 189 9 146 8 Provisions utilised
Accrued income 42 – 36 – during the year (11) (33) (33) (77)
2,686 46 2,435 46 Transfers (2) (10) 4 (8)
Unwinding of
discounts 10 – – 10
At 30 June 2016, approximately 13%, 20% and 11% of the group’s At 30 June 2016 190 6 194 390
trade receivables of £2,155 million are due from counterparties based
in the United Kingdom, the United States and India, respectively. Current liabilities 10 5 122 137
The aged analysis of trade receivables, net of allowances, is Non-current
liabilities 180 1 72 253
as follows:
190 6 194 390
2016 2015
Not overdue 2,012 1,806 (a) Provisions have been established in respect of the discounted
Overdue 1 – 30 days 60 47 value of the group’s commitment to the UK Thalidomide Trust. These
Overdue 31 – 60 days 25 22 will be utilised over the period of the commitments up to 2037.
Overdue 61 – 90 days 16 11
Overdue 91 – 180 days 21 32 (b) The group implemented a number of restructuring programmes,
Overdue more than 180 days 21 15 which involve the rationalisation of certain operations around the
2,155 1,933 world. As at 30 June 2016 there were provisions for certain costs in
respect of employee charges, incremental costs in respect of service
contract and information systems infrastructure charges, the
Trade and other receivables are disclosed net of allowance for outstanding provisions are expected to be substantially utilised by
doubtful debts, an analysis of which is as follows: 30 June 2017 (see note 4).
2016 2015
£ million £ million (c) The largest items in other provisions are £67 million in respect of
Balance at beginning of the year 71 63 the disposal of the wines business in North America and UK based
Exchange differences 5 (6) Percy Fox businesses includes a provision for the settlement of a
Income statement charge 15 21 guarantee given in respect of the lease payments due to the lessor
Written off (8) (7) of the vineyards and £48 million (2015 – £44 million) in respect of
employee deferred compensation plans which will be utilised when
83 71
employees leave the group.
(c) Trade and other payables

2016 2015
Current Non-current Current Non-current
liabilities liabilities liabilities liabilities
Trade payables 916 – 883 –
Interest payable 81 – 77 –
Tax and social
security
excluding
income tax 605 3 546 5
Other payables 680 37 524 40
Accruals 1,056 9 879 9
Deferred income 34 21 34 15
3,372 70 2,943 69
Interest payable at 30 June 2016 includes interest on non-derivative

financial instruments of £73 million (2015 – £68 million).
Financial statements of the group: Risk management and capital structure DIAGEO Annual Report 2016 127
RISK This section sets out the policies and procedures
Strategic report
MANAGEMENT applied to manage the group’s capital structure and the
AND CAPITAL financial risks the group is exposed to. Diageo considers
the following components of its balance sheet to be
STRUCTURE capital: borrowings and equity. Diageo manages its
Introduction capital structure to achieve capital efficiency, provide
flexibility to invest through the economic cycle and give
efficient access to debt markets at attractive cost levels.
15. Financial instruments and risk management
Governance
Accounting policies
Financial assets and liabilities are initially recorded at fair value including any directly attributable transaction costs. For those financial assets
that are not subsequently held at fair value, the group assesses whether there is evidence of impairment at each balance sheet date.
The group classifies its financial assets and liabilities into the following categories: loans and receivables, available-for-sale investments,
financial assets and liabilities at fair value through profit and loss and other financial liabilities at amortised cost.
The accounting policies for available-for-sale investments and loans are described in note 12, for trade and other receivables in note 14
and for cash and cash equivalents in note 16.
Financial assets and liabilities at fair value through profit or loss include derivative assets and liabilities. Where financial assets or liabilities
are eligible to be carried at either amortised cost or fair value the group does not apply the fair value option.
Derivative financial instruments are carried at fair value using a discounted cash flow technique based on market data applied
consistently for similar types of instruments. Gains and losses on derivatives that do not qualify for hedge accounting treatment are taken
to the income statement as they arise.
Other financial liabilities are carried at amortised cost unless they are part of a fair value hedge relationship. The difference between the
initial carrying amount of the financial liabilities and their redemption value is recognised in the income statement over the contractual
terms using the effective interest rate method.
Hedge accounting
The group designates and documents certain derivatives as hedging instruments against changes in fair value of recognised assets and
liabilities (fair value hedges), highly probable forecast transactions or the cash flow risk from a change in exchange or interest rates (cash
flow hedges) and hedges of net investments in foreign operations (net investment hedges). The effectiveness of such hedges is assessed
at inception and at least on a quarterly basis, using prospective and retrospective testing. Methods used for testing effectiveness include
dollar offset, critical terms, regression analysis and hypothetical derivative method.
Fair value hedges are used to manage the currency and/or interest rate risks to which the fair value of certain assets and liabilities are
exposed. Changes in the fair value of the derivatives are recognised in the income statement, along with any changes in the relevant fair
value of the underlying hedged asset or liability.
If such a hedge relationship is de-designated, fair value movements on the derivative continue to be taken to the income statement
while any fair value adjustments made to the underlying hedged item to that date are amortised through the income statement over its
remaining life using the effective interest rate method.
Cash flow hedges are used to hedge the foreign currency risk of highly probable future foreign currency cash flows, as well as the cash
flow risk from changes in exchange or interest rates. The effective portion of the gain or loss on the hedges is recognised in other
comprehensive income, while any ineffective part is recognised in the income statement. Amounts recorded in other comprehensive
income are recycled to the income statement in the same period in which the underlying foreign currency or interest exposure affects
the income statement.
Net investment hedges take the form of either foreign currency borrowings or derivatives. Foreign exchange differences arising on
translation of net investments are recorded in other comprehensive income and included in the exchange reserve. Liabilities used as
hedging instruments are revalued at closing exchange rates and the resulting gains or losses are also recognised in other comprehensive
income to the extent that they are effective, with any ineffectiveness taken to the income statement. Foreign exchange contracts hedging
net investments are carried at fair value. Effective fair value movements are recognised in other comprehensive income, with any
ineffectiveness taken to the income statement.
The group’s funding, liquidity and exposure to foreign currency and interest rate risks are managed by the group’s treasury department.
The treasury department uses a range of financial instruments to manage these underlying risks.
Treasury operations are conducted within a framework of board approved policies and guidelines, which are recommended and
monitored by the finance committee, chaired by the Chief Financial Officer. The policies and guidelines include benchmark exposure and/or
hedge cover levels for key areas of treasury risk which are periodically reviewed by the board following, for example, significant business,
strategic or accounting changes. The framework provides for limited defined levels of flexibility in execution to allow for the optimal
128 DIAGEO Annual Report 2016 Financial statements of the group: Risk management and capital structure
application of the board approved strategies. Transactions arising commercial paper, and by utilising interest rate derivatives. These
from the application of this flexibility are carried at fair value, gains practices aim to minimise the group’s net finance charges with
or losses are taken to the income statement as they arise and are acceptable year-on-year volatility. To facilitate operational efficiency
separately monitored on a daily basis using Value at Risk analysis. In and effective hedge accounting, the group’s policy is to maintain
the year ended 30 June 2016 and 30 June 2015 gains and losses on fixed rate borrowings within a band of 40% to 60% of forecast net
these transactions were not material. The group does not use borrowings. For these calculations, net borrowings exclude interest
derivatives for speculative purposes. All transactions in derivative rate related fair value adjustments. The majority of Diageo’s existing
financial instruments are initially undertaken to manage the risks interest rate derivatives are designated as hedges and are expected
arising from underlying business activities. to be effective. Fair value of these derivatives is recognised in the
The group purchases insurance for commercial or, where required, income statement, along with any changes in the relevant fair value
for legal or contractual reasons. In addition, the group retains of the underlying hedged asset or liability. The group’s net
insurable risk where external insurance is not considered an borrowings interest rate profile is as follows:
economic means of mitigating these risks. 2016 2015
The finance committee receives a monthly report on the key
£ million % £ million %
activities of the treasury department, which would identify any
Fixed rate 4,103 47 4,564 48
exposures which differ from the defined benchmarks, should
they arise. Floating rate(i) 4,738 55 4,818 51
Impact of financial
derivatives
(a) Currency risk
and fair value
The group presents its consolidated financial statements in sterling adjustments (206) (2) 145 1
and conducts business in many currencies. As a result, it is subject to Net borrowings 8,635 100 9,527 100
foreign currency risk due to exchange rate movements, which will
affect the group’s transactions and the translation of the results and (i) The floating rate portion of net borrowings includes cash and cash equivalents, collaterals, floating
rate loans and bonds, bank overdrafts and finance lease obligations.
underlying net assets of its operations. To manage the currency risk
the group uses certain financial instruments. Where hedge
accounting is applied, hedges are documented and tested for The table below sets out the average monthly net borrowings and
effectiveness on an ongoing basis. Diageo expects hedges entered effective interest rate:
into to continue to be effective and therefore does not expect the Average monthly net borrowings Effective interest rate
impact of ineffectiveness on the consolidated income statement 2016 2015 2014 2016 2015 2014
to be material. £million £million £million % % %
9,245 10,459 9,174 3.3 3.5 3.8
Hedge of net investment in foreign operations
(1) For this calculation, net interest charge excludes fair value adjustments to derivative financial
The group hedges a certain portion of its exposure to fluctuations in instruments and borrowings and average monthly net borrowings includes the impact of interest
the sterling value of its foreign operations by designating borrowings rate swaps that are no longer in a hedge relationship but excludes the market value adjustment
held in foreign currencies and using foreign currency spots, forwards, for cross currency interest rate swaps.
swaps and other financial derivatives. The group’s policy is to

maintain total net investment Value at Risk below £1.5 billion, where (c) Commodity price risk
Value at Risk is defined as the maximum amount of loss over a one The group is exposed to commodity price risk. Commodity price risk
year period with a 95% probability confidence level. is managed in line with the principles approved by the board either
Following an internal restructuring foreign currency borrowings through long term purchase contracts with suppliers or, where
and financial derivatives designated in net investment hedge appropriate, derivative contracts. The group policy is to maintain
relationships increased to £6,787 million as at 30 June 2016 the total commodity exposure Value at Risk below 75bps of forecast
(2015 – £3,681 million; 2014 – £3,749 million). gross margin in any given financial year. Where derivative contracts
are used the commodity price risk exposure is hedged up to
Hedge of foreign currency debt 24 months forecast volume principally through exchange-
The group uses cross currency interest rate swaps to hedge the traded futures.
foreign currency risk associated with certain foreign currency
denominated borrowings. (d) Market risk sensitivity analysis
The group uses a sensitivity analysis that estimates the impacts on
Transaction exposure hedging the consolidated income statement and other comprehensive
The group’s policy is to hedge up to 24 months forecast transactional income of either an instantaneous increase or decrease of 0.5% in
foreign currency risk on the net US dollar exposure of the group market interest rates or a 10% strengthening or weakening in sterling
targeting 75% coverage for the current financial year and up to against all other currencies, from the rates applicable at 30 June 2016
18 months for other currency pairs. The group’s exposure to foreign and 30 June 2015, for each class of financial instruments with all other
currency risk arising on forecasted transactions is managed using variables remaining constant. The sensitivity analysis excludes the
forward agreements. impact of market risks on the net post employment benefit liability
and corporate tax payable. This analysis is for illustrative purposes
(b) Interest rate risk only, as in practice interest and foreign exchange rates rarely change
The group has an exposure to interest rate risk, arising principally in isolation.
on changes in US dollar, euro and sterling interest rates. To manage The sensitivity analysis estimates the impact of changes in interest
interest rate risk, the group manages its proportion of fixed to and foreign exchange rates. All hedges are expected to be highly
floating rate borrowings within limits approved by the board, effective for this analysis and it considers the impact of all financial
primarily through issuing fixed and floating rate borrowings and instruments including financial derivatives, cash and cash equivalents,
borrowings and other financial assets and liabilities. The results of the sensitivity analysis should not be considered as projections of likely
Strategic report
future events, gains or losses as actual results in the future may differ materially due to developments in the global financial markets which
may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below.
Impact on income Impact on consolidated
statement comprehensive income
gain/(loss) gain/(loss)(i) (ii)
2016 2015 2016 2015
0.5% decrease in interest rates (24) (20) (8) (16)
0.5% increase in interest rates 24 20 9 17
10% weakening of sterling (26) (48) (641) (624)
10% strengthening of sterling 21 40 525 512
(i) The impact on foreign currency borrowings and derivatives in net investment hedge is largely offset by the foreign exchange difference arising on translation of net investments.
(ii) The impact on the consolidated statement of comprehensive income includes the impact on the income statement.
(e) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. Credit risk arises
Governance
on cash balances (including bank deposits and cash and cash equivalents), derivative financial instruments and credit exposures to customers,
including outstanding loans, trade and other receivables, financial guarantees and committed transactions.
The carrying amount of financial assets represents the group’s exposure to credit risk at the balance sheet date as disclosed in section (i),
excluding the impact of any collateral held or other credit enhancements.
Credit risk is managed separately for financial and business related credit exposures.
Financial credit risk

Diageo aims to minimise its financial credit risk through the application of risk management policies approved and monitored by the board.
Counterparties are predominantly limited to major banks and financial institutions, primarily with a long term credit rating within the A band
or better, and the policy restricts the exposure to any one counterparty by setting credit limits taking into account the credit quality of the
counterparty. The group’s policy is designed to ensure that individual counterparty limits are adhered to and that there are no significant
concentrations of credit risk. The board also defines the types of financial instruments which may be transacted. The credit risk arising through
the use of financial instruments for currency and interest rate risk management is estimated with reference to the fair value of contracts with
a positive value, rather than the notional amount of the instruments themselves.
When derivative transactions are undertaken with bank counterparties, the group may, where appropriate, enter into certain agreements
with such bank counterparties whereby the parties agree to post cash collateral for the benefit of the other if the net valuations of the
derivatives are above a predetermined threshold. At 30 June 2016, the collateral held under these agreements amounted to $104 million
(£78 million) and €73 million (£61 million) (2015 – $82 million (£52 million) and €34 million (£24 million)).
Diageo annually reviews the credit limits applied and regularly monitors the counterparties’ credit quality reflecting market credit
conditions.
Business related credit risk

Loan, trade and other receivables exposures are managed locally in the operating units where they arise and credit limits are set as deemed
appropriate for the customer. There is no significant concentration of credit risk with respect to loans, trade and other receivables as the group
has a large number of customers which are internationally dispersed.
(f) Liquidity risk

Liquidity risk is the risk that Diageo may encounter difficulties in meeting its obligations associated with financial liabilities that are settled
by delivering cash or other financial assets. The group uses short term commercial paper to finance its day-to-day operations. The group’s
policy with regard to the expected maturity profile of borrowings is to limit the amount of such borrowings maturing within 12 months to
50% of gross borrowings less money market demand deposits, and the level of commercial paper to 30% of gross borrowings less money
market demand deposits. In addition, the group’s policy is to maintain backstop facilities with relationship banks to support commercial Additional information for shareholders
paper obligations.
The following tables provide an analysis of the anticipated contractual cash flows including interest payable for the group’s financial
liabilities and derivative instruments on an undiscounted basis. Where interest payments are on a floating rate basis, rates of each cash flow
until maturity of the instruments are calculated based on the forward yield curve prevailing at 30 June 2016 and 30 June 2015. The gross cash
flows of derivative contracts are presented for the purposes of this table and financial assets and liabilities are presented gross in the statement
of financial position, although in practice, the group uses netting arrangements to reduce its liquidity requirements on these instruments.
Contractual cash flows

Carrying
amount at
Due within Due between Due between Due after balance
1 year 1 and 3 years 3 and 5 years 5 years Total sheet date
2016
Borrowings(i) (2,058) (2,853) (558) (4,621) (10,090) (10,129)
Interest on borrowings(i), (iii) (358) (449) (360) (1,415) (2,582) (73)
Finance lease capital repayments (29) (58) (69) (86) (242) (242)
Finance lease future interest payments (13) (20) (13) (54) (100) –
Trade and other financial liabilities(ii) (2,435) (199) (8) (4) (2,646) (2,638)
Non-derivative financial liabilities (4,893) (3,579) (1,008) (6,180) (15,660) (13,082)
Gross amount receivable from derivatives 947 153 106 1,566 2,772 –
Gross amount payable on derivatives (647) (144) (73) (1,130) (1,994) –
Derivative instruments(iii) 300 9 33 436 778 498
2015
Borrowings(i) (1,920) (2,556) (968) (4,365) (9,809) (9,838)
Interest on borrowings(i), (iii) (340) (479) (334) (1,434) (2,587) (68)
Finance lease capital repayments (38) (50) (70) (104) (262) (262)
Finance lease future interest payments (13) (19) (16) (23) (71) –
Trade and other financial liabilities(ii) (2,172) (54) (143) – (2,369) (2,353)
Non-derivative financial liabilities (4,483) (3,158) (1,531) (5,926) (15,098) (12,521)
Gross amount receivable from derivatives 97 478 176 1,360 2,111 –
Gross amount payable on derivatives (162) (374) (110) (1,154) (1,800) –
Derivative instruments(iii) (65) 104 66 206 311 131
(i) For the purpose of these tables above, borrowings are defined as gross borrowings excluding finance lease liabilities and fair value of derivative instruments as disclosed in note 16.
(ii) Primarily consists of trade and other payables that meet the definition of financial liabilities under IAS 32.
(iii) Carrying amount of interest on borrowings and interest on derivatives is included within interest payable in note 14.
The group had available undrawn committed bank facilities as follows: (g) Fair value measurements
2016 2015
Fair value measurements of financial instruments are presented
£ million £ million through the use of a three-level fair value hierarchy that prioritises the
Expiring within one year – 688 valuation techniques used in fair value calculations.
Expiring between one and two years 470 – The group maintains policies and procedures to value instruments
Expiring after two years 2,072 1,541 using the most relevant data available. If multiple inputs that fall into
2,542 2,229
different levels of the hierarchy are used in the valuation of an
instrument, the instrument is categorised on the basis of the most
subjective input.
The facilities can be used for general corporate purposes and, Foreign currency forwards and swaps, cross currency swaps and
together with cash and cash equivalents, support the group’s interest rate swaps are valued using discounted cash flow techniques.
commercial paper programmes. These techniques incorporate inputs at levels 1 and 2, such as foreign
There are no financial covenants on the group’s material short and exchange rates and interest rates. These market inputs are used in the
long term borrowings. Certain of these borrowings contain cross discounted cash flow calculation incorporating the instrument’s term,
default provisions and negative pledges. notional amount and discount rate, and taking credit risk into
The committed bank facilities are subject to a single financial account. As significant inputs to the valuation are observable in
covenant, being minimum interest cover ratio of two times (defined active markets, these instruments are categorised as level 2 in the
as the ratio of operating profit before exceptional items, aggregated hierarchy.
with share of after tax results of associates and joint ventures, to net Other financial liabilities include an option held by Industrias
interest). They are also subject to pari passu ranking and negative Licoreras de Guatemala to sell the remaining 50% equity stake in Rum
pledge covenants. Creations & Products, Inc. the owner of the Zacapa rum brand, to
Any non-compliance with covenants underlying Diageo’s Diageo, with changes in fair value of this option included in retained
financing arrangements could, if not waived, constitute an event earnings. As the valuation of this option uses assumptions not
of default with respect to any such arrangements, and any non- observable in the market, it is categorised as level 3 in the hierarchy.
compliance with covenants may, in particular circumstances, lead The exercise date of this option is estimated based on forecast future
to an acceleration of maturity on certain borrowings and the inability performance and an estimated rate of return.
to access committed facilities. Diageo was in full compliance with The option is sensitive to reasonably possible changes in
its financial, pari passu ranking and negative pledge covenants in assumptions. If the option is exercised two years earlier or two years
respect of its material short and long term borrowings throughout later the value of the option will increase and decrease by £17 million
each of the years presented. and £15 million, respectively. If forecast performance increases or
decreases by 10%, the value of the option would increase and
decrease by £30 million and £13 million, respectively.
Available-for-sale investments at 30 June 2015 comprised shares held There were no transfers between levels during the two years ended
Strategic report
in United Breweries Limited categorised as level 1 in hierarchy. These 30 June 2016 and 30 June 2015.
shares were sold on 7 July 2015. In addition retained earnings comprise £3 million capital injection
The group’s financial assets and liabilities measured at fair value to Zacapa from Industrias Licoreras de Guatemala.
are categorised as follows:
2016 2015
(h) Results of hedging instruments
£ million £ million In respect of cash flow hedging instruments, a gain of £31 million
Available-for-sale investments – 80 (2015 – £46 million loss; 2014 – £54 million gain) has been recognised
Unadjusted quoted prices in active in other comprehensive income due to changes in fair value. A loss of
markets (Level 1) – 80 £66 million has been transferred out of other comprehensive income
Derivative assets 879 338 to other operating expenses and a gain of £211 million to other
Derivative liabilities (373) (198) finance charges, respectively (2015 – a loss of £26 million and a gain
Valuation techniques based on observable of £84 million; 2014 – a gain of £54 million and loss of £88 million,
market input (Level 2) 506 140 respectively) to offset the foreign exchange impact on the
Other financial liabilities (165) (139) underlying transactions.
Valuation techniques based on For cash flow hedges of forecast transactions at 30 June 2016,
unobservable market input (Level 3) (165) (139) based on year end interest and foreign exchange rates, there is
Governance
expected to be a loss to the income statement of £113 million in
financial year 2017 and a loss of £36 million in financial year 2018.
The movements in level 3 instruments, measured on a recurring With respect to hedges of the cash flow risk from a change in forward
basis, are as follows: foreign exchange rates using cross currency interest rate swaps, the
Other financial liabilities retranslation of the related bond principal to closing foreign
2016 2015 exchange rates and recognition of interest on the related bonds will
£ million £ million affect the income statement in each year until the related bonds
At 1 July (139) (108) mature in 2016, 2036 and 2043. Foreign exchange retranslation and
Net losses included in the income statement (1) (14) the interest on the hedged bonds in the income statement are
Net losses included in exchange in other expected to offset those on the cross currency swaps in each of
comprehensive income (25) (11) the years.
Net losses included in retained earnings (3) (9) The gain on fair value hedging instruments for the year was
Settlement of liabilities 3 3 £16 million (2015 – £11 million gain; 2014 – £8 million gain) and the
At 30 June (165) (139) loss on the hedged items attributable to the hedged risks was
£26 million (2015 – £11 million loss; 2014 – £6 million loss).
There was no significant ineffectiveness on net investment
hedging during the year ended 30 June 2016.

(i) Reconciliation of financial instruments

The table below sets out the group’s accounting classification of each class of financial assets and liabilities:
Loans and
Fair value receivables Not categorised
through income and liabilities at Available as a financial
statement amortised cost for sale instrument Total Current Non-current
£ million £ million £ million £ million £ million £ million £ million
2016
Other investments and loans – 31 – 31 – 31
Trade and other receivables – 2,424 – 308 2,732 2,686 46
Cash and cash equivalents – 1,089 – – 1,089 1,089 –
Derivatives in fair value hedge 35 – – – 35 – 35
Derivatives in cash flow hedge 362 – – – 362 130 232
Derivatives in net investment hedge 216 – – – 216 216 –
Other instruments at fair value 266 – – – 266 148 118
Finance lease assets – 36 – – 36 1 35
Total other financial assets 879 36 – – 915 495 420
Total financial assets 879 3,580 – 308 4,767 4,270 497
Borrowings(i) – (10,129) – – (10,129) (2,058) (8,071)
Trade and other payables – (2,554) – (888) (3,442) (3,372) (70)
Derivatives in cash flow hedge (148) – – – (148) (102) (46)
Derivatives in net investment hedge (66) – – – (66) (66) –
Other instruments at fair value (324) – – – (324) (83) (241)
Finance leases – (242) – – (242) (29) (213)
Total other financial liabilities (538) (242) – – (780) (280) (500)
Total financial liabilities (538) (12,925) – (888) (14,351) (5,710) (8,641)
Total net financial assets/(liabilities) 341 (9,345) – (580) (9,584) (1,440) (8,144)
2015
Other investments and loans – 29 80 – 109 – 109
Trade and other receivables – 2,184 – 297 2,481 2,435 46
Cash and cash equivalents – 472 – – 472 472 –
Derivatives in fair value hedge 19 – – – 19 – 19
Derivatives in cash flow hedge 186 – – – 186 21 165
Derivatives in net investment hedge 11 – – – 11 8 3
Other instruments at fair value 122 – – – 122 17 105
Total other financial assets 338 – – – 338 46 292
Total financial assets 338 2,685 80 297 3,400 2,953 447
Borrowings(i) – (9,838) – – (9,838) (1,921) (7,917)
Trade and other payables – (2,291) – (721) (3,012) (2,943) (69)
Derivatives in cash flow hedge (51) – – – (51) (31) (20)
Derivatives in net investment hedge (52) – – – (52) (52) –
Other instruments at fair value (234) – – – (234) (35) (199)
Finance leases – (262) – – (262) (38) (224)
Total other financial liabilities (337) (262) – – (599) (156) (443)
Total financial liabilities (337) (12,391) – (721) (13,449) (5,020) (8,429)
Total net financial assets/(liabilities) 1 (9,706) 80 (424) (10,049) (2,067) (7,982)
(i) Borrowings are defined as gross borrowings excluding finance lease liabilities and the fair value of derivative instruments.
At 30 June 2016 and 30 June 2015, the carrying values of cash and cash equivalents, other financial assets and liabilities approximate to fair
values. At 30 June 2016 the fair value of borrowings, based on unadjusted quoted market data, was £10,709 million (2015 – £10,115 million).
(j) Capital management

The group’s management is committed to enhancing shareholder value in the long term, both by investing in the businesses and brands so
as to deliver continued improvement in the return from those investments and by managing the capital structure. Diageo manages its capital
structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to debt markets at
attractive cost levels. This is achieved by targeting a net borrowing to EBITDA leverage of 2.5 – 3.0 times, this range for Diageo being currently
broadly consistent with an A band credit rating. Diageo would consider operating outside of this range in order to effect strategic initiatives
within its stated goals, which could have an impact on its rating. If Diageo’s leverage was to be negatively impacted by the financing of an
acquisition, it would seek over time to return to the range of 2.5 – 3.0 times. The group regularly assesses its debt and equity capital levels against
its stated policy for capital structure. For this calculation net borrowings are adjusted by the net post employment deficit whilst EBITDA equals
operating profit excluding exceptional operating items and depreciation, amortisation and impairment and includes share of after tax results of
associates and joint ventures.
16. Net borrowings
Strategic report
Accounting policies
Borrowings are initially recognised at fair value net of transaction costs and are subsequently reported at amortised cost. Certain bonds are
designated as being part of a fair value hedge relationship. In these cases, the amortised cost is adjusted for the fair value of the risk being
hedged, with changes in value recognised in the income statement. The fair value adjustment is calculated using a discounted cash flow
technique based on unadjusted market data.
Bank overdrafts form an integral part of the group’s cash management and are included as a component of net cash and cash
equivalents in the consolidated statement of cash flows.
Cash and cash equivalents comprise cash in hand and deposits which are readily convertible to known amounts of cash and which are
subject to insignificant risk of changes in value and have an original maturity of three months or less, including money market deposits,
commercial paper and investments.
Net borrowings are defined as gross borrowings (short term borrowings and long term borrowings plus finance lease liabilities plus
interest rate hedging instruments, cross currency interest rate swaps and funding foreign currency forwards and swaps used to manage
borrowings) less cash and cash equivalents.
2016 2015 Gross borrowings before derivative financial instruments will mature
Governance
£ million £ million as follows:
Bank overdrafts 280 90 2016 2015 2014
Commercial paper – 354 £ million £ million £ million
Bank and other loans 436 444 Within one year 2,058 1,921 1,576
Credit support obligations 139 76 Between one and three years 2,896 2,607 1,894
US$ 750 million 5.3% bonds due 2015 – 478 Between three and five years 537 970 1,972
US$ 750 million 0.625% bonds due 2016 – 477 Beyond five years 4,638 4,340 3,772
US$ 600 million 5.5% bonds due 2016 451 – 10,129 9,838 9,214
US$ 1,000 million 1.5% bonds due 2017 751 –
Fair value adjustment to borrowings 1 2
During the year the following bonds were issued and repaid:
Borrowings due within one year 2,058 1,921
2016 2015 2014
US$ 600 million 5.5% bonds due 2016 – 382 £ million £ million £ million
US$ 1,000 million 1.5% bonds due 2017 – 635 Issued
US$ 1,250 million 5.75% bonds due 2017 939 795 € denominated – 791 1,378
US$ 650 million 1.125% bonds due 2018 487 412 US$ denominated – – –
€500 million 1.125% bonds due 2019 421 359 Repaid
€850 million 1.125% bonds due 2019 707 601 € denominated – (792) (983)
US$ 696 million 4.828% bonds due 2020 488 399 US$ denominated (1,003) (330) (488)
US$ 1,000 million 2.875% bonds due 2022 748 633 £ denominated(i) – (370) –
US$ 300 million 8% bonds due 2022 224 189 (1,003) (701) (93)
US$ 1,350 million 2.625% bonds due 2023 1,011 855
(i) In the year ended 30 June 2015 a bond of £370 million acquired on the purchase of USL was repaid
€500 million 1.75% bonds due 2023 413 351
using the proceeds from the sale of the Whyte and Mackay Group.
€850 million 2.375% bonds due 2026 702 597
US$ 400 million 7.45% bonds due 2035 301 255 (a) Reconciliation of movement in net borrowings
US$ 600 million 5.875% bonds due 2036 446 378
2016 2015
US$ 500 million 4.25% bonds due 2042 371 315 £ million £ million
US$ 500 million 3.875% bonds due 2043 369 312 At beginning of the year 9,527 8,850
US$ 200 million 4.85% medium term notes Net (increase)/decrease in cash and cash
due 2018 150 127 equivalents before exchange (343) 77
Bank and other loans 184 213 Net (increase)/decrease in bonds and other Additional information for shareholders
Fair value adjustment to borrowings 110 109 borrowings (1,236) (315)
Borrowings due after one year 8,071 7,917 Change in net borrowings from cash flows (1,579) (238)
Total borrowings before derivative financial Exchange differences on net borrowings 725 7
instruments 10,129 9,838 Borrowings on acquisition of businesses – 869
Fair value of foreign currency derivatives (612) (82) Borrowings on disposal of businesses (14) –
Fair value of interest rate hedging instruments (35) (19) Other non-cash items (24) 39
Finance lease liabilities 242 262 Net borrowings at end of the year 8,635 9,527
Gross borrowings 9,724 9,999
Less: Cash and cash equivalents (1,089) (472)
Net borrowings 8,635 9,527
(1) The interest rates shown are those contracted on the underlying borrowings before taking
into account any interest rate hedges (see note 15).
(2) Bonds are stated net of unamortised finance costs of £72 million (2015 – £82 million;
2014 – £94 million).
(3) Bonds are reported at amortised cost with a fair value adjustment shown separately.
(4) All bonds, medium term notes and commercial paper issued by the group’s wholly owned
subsidiaries are fully and unconditionally guaranteed by Diageo plc.
(b) Analysis of net borrowings by currency

2016 2015
Cash and cash Gross Cash and cash Gross
equivalents borrowings(i) equivalents borrowings(i)
US dollar 503 (3,247) 35 (2,759)
Euro 61 (2,034) 44 (1,410)
Sterling(ii) 66 (3,980) 28 (5,200)
Indian rupee 37 (418) 13 (486)
Nigerian naira 13 (84) 16 (76)
Turkish lira(ii) 169 (4) 4 (67)
Korean won 35 – 80 –
Brazilian real 30 (2) 16 (2)
Chinese Yuan 51 (7) 28 7
Other 124 52 208 (6)
Total 1,089 (9,724) 472 (9,999)
(i) The analysis of group’s gross borrowings includes foreign currency forwards and swaps and finance leases.
(ii) As at 30 June 2016 includes £32 million (Sterling) and £162 million (Turkish lira) cash and cash equivalents in cash-pooling arrangements. See note 1(f).
17. Equity
Accounting policies (c) Own shares

Own shares represent shares and share options of Diageo plc Movements in own shares
that are held in treasury or by employee share trusts for the Number Purchase
purpose of fulfilling obligations in respect of various employee of shares consideration
million £ million
share plans or were acquired as part of a share buyback
programme. Own shares are treated as a deduction from equity At 30 June 2013 251 2,232
until the shares are cancelled, reissued or disposed of and when Share trust arrangements (3) (42)
vest are transferred from own shares to retained earnings at their Shares call options exercised(i) 7 68
weighted average cost. Shares purchased 7 138
Share based payments include share awards and options Shares sold to employees – (1)
granted to directors and employees. The fair value of equity Shares used to satisfy options (9) (115)
settled share options and share grants is initially measured at At 30 June 2014 253 2,280
grant date based on the binomial or Monte Carlo models and is Share trust arrangements (2) (18)
charged to the income statement over the vesting period. For
Shares purchased 4 70
equity settled shares the credit is included in retained earnings.
Shares used to satisfy options (7) (104)
Cancellations of share options are treated as an acceleration of the
vesting period and any outstanding charge is recognised in At 30 June 2015 248 2,228
operating profit immediately. Any surplus or deficit arising on the Share trust arrangements (1) (6)
sale of the Diageo plc shares held by the group is included as a Shares purchased 2 42
movement in equity. Shares used to satisfy options (5) (75)
Dividends are included in the financial statements in the At 30 June 2016 244 2,189
financial year in which they are approved.
(i) Includes the fair value of foreign currency denominated call options exercised.
(a) Allotted and fully paid share capital – ordinary shares of 28 ⁄108 101
Share trust arrangements
pence each At 30 June 2016 the employee share trusts owned 7 million of
Number Nominal ordinary shares in Diageo plc at a cost of £113 million and market
of shares value value of £155 million (2015 – 8 million shares at a cost of £119 million,
million £ million
market value £149 million; 2014 – 10 million shares at a cost of
At 30 June 2016, 30 June 2015 and £137 million, market value £181 million). Dividends receivable by the
30 June 2014 2,754 797
employee share trusts on the shares are waived and the trustee
abstains from voting.
(b) Hedging and exchange reserve
Purchase of own shares
Hedging Exchange
reserve reserve Total Authorisation was given by shareholders on 23 September 2015 to
£ million £ million £ million purchase a maximum of 251,514,000 shares at a minimum price of
At 30 June 2013 17 (9) 8 28101⁄108 pence and a maximum price of higher of (a) 105% of the
Other comprehensive income 90 (1,001) (911) average of the middle market quotations for an ordinary share for the
At 30 June 2014 107 (1,010) (903) five preceding business days and (b) the higher of the price of the last
Other comprehensive income (86) (163) (249) independent trade and the highest current independent bid on the
At 30 June 2015 21 (1,173) (1,152) London Stock Exchange at the time the purchase is carried out. The
Other comprehensive income (111) 742 631 programme expires at the conclusion of the next Annual General
Meeting or on 22 December 2016, if earlier.
At 30 June 2016 (90) (431) (521)
During the year ended 30 June 2016, the company purchased (d) Dividends
Strategic report
2 million ordinary shares (including shares acquired through call
option exercises), nominal value of £1 million (2015 – 4 million 2016 2015 2014
ordinary shares, nominal value of £1 million; 2014 – 14 million ordinary
shares, nominal value of £4 million), representing approximately 0.1% Amounts recognised as
distributions to equity
(2015 – 0.1%; 2014 – 0.5%) of the issued ordinary share capital shareholders in the year
(excluding treasury shares). Final dividend for the year ended
Shares were either directly granted to employees as part of 30 June 2015
employee share schemes or held as treasury shares and used to 34.9 pence per share (2014 – 32.0
hedge share scheme grants to employees during the course of pence; 2013 – 29.3 pence) 876 801 735
the year. Interim dividend for the year
The aggregate consideration paid for purchase of own shares ended 30 June 2016
was £53 million (excluding expenses) in the year ended 30 June 2016. 22.6 pence per share (2015 – 21.5
The annual purchase includes 617,840 shares for £11 million pence; 2014 – 19.7 pence) 567 540 493
purchased at an average price of 1713 pence for the purpose of 1,443 1,341 1,228
satisfying share awards made under the company’s share incentive
plans, the cost of which was charged directly to the consolidated
Governance
income statement. The monthly breakdown of shares purchased and The proposed final dividend of £918 million (36.6 pence per share) for
the average price paid per share (excluding expenses) for the year the year ended 30 June 2016 was approved by the Board of Directors
ended 30 June 2016 were as follows: on 27 July 2016. As this was after the balance sheet date and the
dividend is subject to approval by shareholders at the Annual General
Authorised
Number Average purchases Meeting, this dividend has not been included as a liability in these
of shares price paid unutilised at consolidated financial statements. There are no corporate tax
Calendar month purchased pence month end
consequences arising from this treatment.
September 2015 2,719,851 1737 248,794,149 Dividends are waived on all treasury shares owned by the
March 2016 295,510 1872 248,498,639 company and all shares owned by the employee share trusts.
Total 3,015,361 1750 248,498,639
(e) Non-controlling interests

Diageo consolidates USL, a company incorporated in India, with a 43.91% non-controlling interest and has a 50% controlling interest (2015 –
50%) in Ketel One Worldwide B.V. (Ketel One), a company incorporated in the Netherlands. All other consolidated subsidiaries are fully owned
or the non-controlling interests are not material.
Summarised financial information for USL, Ketel One and others, after fair value adjustments on acquisition, and the amounts attributable
to non-controlling interests are as follows:
2016 2015
Ketel One Ketel One
USL and others Total USL and others Total
Income statement
Sales 2,460 1,563 4,023 2,363 1,627 3,990
Net sales 873 1,265 2,138 926 1,324 2,250
Profit/(loss) for the year 76 175 251 (10) 200 190
Other comprehensive income(i) 157 242 399 50 66 116
Total comprehensive income 233 417 650 40 266 306
Attributable to non-controlling interests 102 188 290 18 131 149
Balance sheet
Non-current assets(ii) 2,289 2,536 4,825 2,132 2,264 4,396
Current assets 601 587 1,188 527 518 1,045
Non-current liabilities (518) (821) (1,339) (579) (723) (1,302) Additional information for shareholders
Current liabilities (639) (554) (1,193) (580) (462) (1,042)

Net assets 1,733 1,748 3,481 1,500 1,597 3,097
Attributable to non-controlling interests 761 889 1,650 659 826 1,485
Cash flow
Net cash inflow/(outflow) from operating activities 17 228 245 (32) 314 282
Net cash inflow/(outflow) from investing activities 70 (53) 17 388 (88) 300
Net cash outflow from financing activities (67) (145) (212) (373) (196) (569)
Net increase in cash and cash equivalents 20 30 50 (17) 30 13
Exchange differences 4 (5) (1) 2 1 3
Dividends paid to non-controlling interests – (101) (101) – (72) (72)
(i) Other comprehensive income is principally in respect of exchange on translating the subsidiaries to sterling.
(ii) Ketel One includes the global distribution rights to distribute Ketel One vodka products throughout the world. The carrying value of the distribution rights at 30 June 2016 was £1,354 million
(2015 – £1,147 million).
(f) Employee share compensation For performance shares under the DLTIP (previous PSP) dividends are
The group uses a number of share award and option plans to grant accrued on awards and are given to participants to the extent that
to its directors and employees. the awards actually vest at the end of the performance period.
The annual fair value charge in respect of the equity settled plans Dividends can be paid in the form of cash or shares.
for the three years ended 30 June 2016 is as follows: For the three years ended 30 June 2016, the calculation of the fair
2016 2015 2014
value of each share award used the Monte Carlo pricing model and
£ million £ million £ million the following weighted average assumptions:
Executive share award plans 24 27 30 2016 2015 2014
Executive share option plans 3 4 4 Risk free interest rate 1.0% 1.4% 1.0%
Savings plans 2 4 3 Expected life of the awards 37 months 37 months 36 months
29 35 37 Dividend yield 3.2% 3.1% 2.7%
Weighted average share price 1737 p 1832 p 1970 p
Executive share awards are made under the Diageo 2014 Long Term Weighted average fair value of
Incentive plan (DLTIP) from September 2014 onwards. Prior to that, awards granted in the year 1058 p 753 p 1147 p
awards were made under the Diageo plc 2009 Executive Long Term Number of awards granted
in the year 3.1 million 2.5 million 2.5 million
Incentive Plan (DELTIP), the 2008 Performance Share Plan (PSP), the
2008 Senior Executive Share Option Plan (SESOP) or the 2009 Fair value of all awards granted
in the year £33 million £19 million £29 million
Discretionary Incentive Plan (DIP). Prior to the introduction of the
DLTIP, employees in associated companies were granted awards
under the Diageo plc 2011 Associated Companies Share Incentive Transactions on schemes
Plan (DACSIP). Under all of these plans, conditional awards can be Transactions on the executive share award plans for the three years
delivered in the form of restricted shares or share options at the ended 30 June 2016 were as follows:
market value at the time of grant.
2016 2015 2014
Share awards normally vest and are released on the third Number of Number of Number of
anniversary of the grant date. Participants do not make a payment to awards awards awards
million million million
receive the award at grant. Executive Directors are required to hold
Balance outstanding at 1 July 7.6 9.4 11.3
any vested shares awarded from 2014 for a further two-year period.
Share options may normally be exercised between three and ten Granted 3.1 2.5 2.5
years after the grant date. Executives in North America and Latin Exercised/awarded (1.6) (2.6) (3.4)
America and Caribbean are granted awards over the company’s ADSs Forfeited/expired (1.9) (1.7) (1.0)
(one ADS is equivalent to four ordinary shares). Balance outstanding at 30 June 7.2 7.6 9.4
Performance shares under the DLTIP (previous PSP) are subject to
the achievement of three equally weighted performance tests over
At 30 June 2016, 6.7 million executive share options were exercisable
the three-year performance period for the 2013 and 2014 grants
at a weighted average exercise price of 1391 pence.
these were; 1) a comparison of Diageo’s three-year TSR with a peer
group; 2) compound annual growth in organic net sales over three
years; 3) total organic operating margin improvement over three
years. For awards made in September 2015 or later, the third measure
was replaced by one based on cumulative free cash flow over a
three-year period, measured at constant exchange rates.
Performance share options under the DLTIP (previously SESOP) are
subject to the achievement of an earnings per share growth
condition over a three-year period. Performance measures and
targets are set annually by the Remuneration Committee. The
vesting range is 20% or 25% (for Executive Directors and for other
participants respectively) for achieving minimum performance
targets, up to 100% for achieving the maximum target level.
Retesting of the performance condition is not permitted.
Financial statements of the group: Other financial information DIAGEO Annual Report 2016 137
OTHER FINANCIAL This section includes additional financial information
Strategic report
INFORMATION that are either required by the relevant accounting
standards or management considers these to be
Introduction material information for shareholders.
18. Contingent liabilities and legal proceedings While the guarantee amount has been fully provided for, Watson
Governance
remains liable for all amounts paid by DHN under the guarantee.
Accounting policies DHN is entitled to the benefit of the underlying security package for
Provision is made for the anticipated settlement costs of legal or the loan, which includes shares in United Breweries Limited (UBL),
other disputes against the group where it is considered to be Watson’s interest in Orange India Holdings S.a.r.l. (Orange), the joint
probable that a liability exists and a reliable estimate can be made venture that owns the Force India Formula One (F1) team, and the
of the likely outcome. Where it is possible that a settlement may shareholding in Watson, all of which remains in place. On
be reached or it is not possible to make a reliable estimate of the 19 June 2015, a consortium of banks led by State Bank of India (SBI)
estimated financial effect appropriate disclosure is made but no obtained an ex-parte order from the Debt Recovery Tribunal (DRT)
provision created. in Bangalore preventing the sale or any other transfer of such UBL
shares as part of the enforcement process pending further orders
Critical accounting estimates and judgements from the DRT. This order was passed following the filing of a
A judgement is necessary in assessing the likelihood that a claim memorandum by Dr Mallya with the tribunal that he had no
will succeed, or a liability will arise, and to quantify the possible objection to it issuing the order in respect of the UBL shares. There
range of any settlement. Due to the inherent uncertainty in this was a further ex-parte order of the DRT on 15 July 2015 restraining
evaluation process, actual losses may be different from the liability the UBL shares being handed over to DHN or to any other party
originally estimated. pending further orders of the DRT. DHN filed a writ petition before
the High Court of Karnataka (the High Court) against such orders of
(a) Guarantees and related matters the DRT, and on 7 November 2015, the High Court passed an interim
As of 30 June 2016, the group has no material guarantees or order granting an interim stay of the order of the DRT dated
indemnities outstanding in respect of liabilities of third parties. 15 July 2015 and directing that the UBL shares shall not be dealt
The following matters relate to guarantees previously discharged. with until further orders. Subsequently, DHN was joined in the
Diageo Holdings Netherlands B.V. (DHN) issued a conditional proceedings before the DRT.
backstop guarantee to Standard Chartered Bank (Standard Chartered) Further, in a separate application filed by the SBI-led consortium
pursuant to a guarantee commitment agreement (the Guarantee before the DRT, on 17 May 2016 the DRT passed another ex-parte
Agreement). The guarantee was in respect of the liabilities of Watson order attaching the shares held by Dr Mallya in Watson and directing
Limited (Watson), a company affiliated with Dr Vijay Mallya (Dr Watson not to disburse amounts including dividends on shares held
Mallya), under a $135 million (£92 million) facility from Standard by Watson in Orange until further orders of the DRT. DHN and
Chartered. The Guarantee Agreement was entered into as part of the Standard Chartered (who were not named as parties in the above
arrangements put in place and announced at closing of the United mentioned application filed by the SBI-led consortium) filed
Spirits Limited (USL) transaction on 4 July 2013. DHN’s provision of the applications before the DRT to lift this order.
Guarantee Agreement enabled the refinancing of certain existing DHN is continuing to vigorously pursue these matters in order
borrowings of Watson from a third party bank and facilitated the to lift the above DRT orders as part of the efforts for enforcement Additional information for shareholders
release by that bank of rights over certain USL shares that were to be of the underlying security and recovery of outstanding amounts.
acquired by Diageo as part of the USL transaction. The facility Arguments on these matters have been made before the DRT, and
matured and entered into default in May 2015. Whilst the guarantee the Presiding Officer of the DRT has not yet issued orders. Diageo
was not payable immediately, DHN and Standard Chartered agreed believes that the existence of any prior rights or dispute in relation to
to extend the date on which the guarantee was payable to the security would be in breach of representations and warranties
29 January 2016 to allow additional time for enforcement of the given by Dr Mallya to Standard Chartered at the time the security
security package underlying the facility. As part of this agreement, in was granted and further believes that Dr Mallya’s filing of the
August 2015 DHN deposited $135 million (£92 million) in an escrow memorandum with the tribunal in relation to the UBL shares and
account with Standard Chartered. The loan remained in default and his failure to object to the order for status quo in that regard are
the guarantee was paid on 29 January 2016. The $135 million breaches of his obligations to Standard Chartered.
(£92 million) deposit was released to Standard Chartered and has Under the terms of the guarantee and as a matter of law, there are
been fully provided for during the year ended 30 June 2016. In arrangements to pass on to DHN the benefit of the security package
aggregate DHN paid Standard Chartered $141 million (£96 million) upon payment under the guarantee of all amounts owed to Standard
under this guarantee, including the $135 million (£92 million) Chartered. Payment under the guarantee has now occurred as
previously deposited, as well as payments of default interest and described above. Standard Chartered has taken certain recovery
various fees and expenses. steps and is working with DHN in relation to the DRT proceedings.
138 DIAGEO Annual Report 2016 Financial statements of the group: Other financial information
DHN is actively monitoring the security package and is discussing waived the conditionality under the SPA relating to the absence
with Standard Chartered steps to continue enforcement against the of insolvency proceedings in relation to UBHL and acquired the
background of the DRT proceedings described above as well as in 10,141,437 USL shares from UBHL at that time.
relation to the other elements of the security package. DHN’s ability Following closing of the UBHL Share Sale, appeals were filed
to assume or enforce security over some elements of the security by various petitioners in respect of the Leave Order. On
package is also subject to regulatory consent. It is not at this stage 20 December 2013, the division bench of the High Court set
possible to determine whether such consent would be forthcoming. aside the Leave Order (the 20 December Order). Following the
In addition, DHN has the benefit of a counter-indemnity from Watson 20 December Order, Diageo filed special leave petitions (SLPs)
in respect of payments in connection with the guarantee. in the Supreme Court of India against the 20 December Order.
The agreement with Dr Mallya referenced in paragraph (d) below On 10 February 2014, the Supreme Court of India issued an order
does not impact the security package, which includes shares in UBL giving notice in respect of the SLPs and ordering that the status quo
and Watson’s interest in Orange, the joint venture that owns the be maintained with regard to the UBHL Share Sale pending a hearing
F1 team. Watson remains liable for all amounts paid pursuant to the on the matter in the Supreme Court. Following a number of
guarantee. DHN is entitled to the benefit of the security package adjournments, the next hearing date for the SLPs (in respect of which
underlying the facility and the security providers have undertaken leave has since been granted and which have been converted to civil
to take all necessary actions in that regard. appeals) is yet to be fixed.
In separate proceedings, various winding-up petitions against
(b) Thalidomide litigation UBHL have been admitted by the High Court. These petitions and
In June 2014, claim forms alleging product liability and negligence certain related proceedings have been progressing through the
for injuries arising from the consumption of thalidomide were filed in High Court since closing of the UBHL Share Sale. Following earlier
the High Court in London against Distillers Company (Biochemicals) adjournments there is currently no fixed date for the next hearing
Limited, its parent Diageo Scotland Limited (formerly Distillers of the various winding-up proceedings.
Company Limited), as well as against Grϋnenthal GmbH, the Diageo continues to believe that the acquisition price of
developer of the drug (not a member of the group). On INR 1,440 paid to UBHL for the USL shares is fair and reasonable
4 December 2014 these claims forms were served by lawyers acting as regards UBHL, UBHL’s shareholders and UBHL’s secured and
for the claimants. Since then the proceedings in respect of the 28 unsecured creditors. However, adverse results for Diageo in the
individuals that have now issued claims in the United Kingdom have proceedings referred to above could, absent leave or relief in other
been stayed until 30 September 2016 while discussions are ongoing proceedings, ultimately result in Diageo losing title to the 10,141,437
between Diageo and the claimants’ lawyers. USL shares acquired from UBHL. Diageo believes it would remain
Diageo is unable to meaningfully quantify the possible loss or in control of USL and be able to consolidate USL as a subsidiary
range of loss to which these lawsuits may give rise. Distillers regardless of the outcome of this litigation. There can be no
Company (Biochemicals) Limited distributed thalidomide in the certainty as to the outcome of the existing or any further related
United Kingdom for a period in the late 1950s and early 1960s. legal proceedings or the timeframe within which they would
Diageo has worked voluntarily for many years with various be concluded.
thalidomide organisations and has provided significant financial Diageo also has the benefit of certain contractual undertakings
support. A scheduled periodic review of Diageo’s financing of the and commitments from the relevant sellers in relation to potential
UK Thalidomide Trust will be undertaken during the year ending challenges to its unencumbered title to the USL shares acquired
30 June 2017. on 4 July 2013, including relating to the winding-up petitions
described above and/or certain losses and costs that may be
(c) Acquisition of USL shares from UBHL, winding-up petitions incurred in the event of third party actions relating to the acquisition
against UBHL and other proceedings in relation to the USL of the USL shares.
transaction (ii) Separately, Diageo’s contractual rights in relation to the
(i) On 4 July 2013 Diageo completed its acquisition, under a share acquisition of an additional 3,459,090 USL shares (representing 2.38%
purchase agreement with UBHL and various other sellers (the SPA), of the share capital of USL) under the SPA from the USL Benefit Trust
of 21,767,749 shares (14.98%) in USL for a total consideration of have not been capable of completion. Currently certain lenders to
INR 31.3 billion (£349 million), including 10,141,437 shares (6.98%) from USL are refusing to release security that they hold over those shares
UBHL. The SPA was signed on 9 November 2012 and was part of the notwithstanding that they have been repaid in full. USL filed a
transaction announced by Diageo in relation to USL on that day (the petition against such lenders before the High Court for release of the
Original USL Transaction). Through a series of further transactions, security and the High Court granted a stay order in favour of USL in
as of 2 July 2014, Diageo has a 54.78% investment in USL (excluding December 2015 restraining the lenders from dealing with the
2.38% owned by the USL Benefit Trust). 3,459,090 pledged USL shares until further order of the High Court.
Prior to the acquisition from UBHL on 4 July 2013, the High Court As previously disclosed, while those shares are held by the USL
had granted leave to UBHL under sections 536 and 537 of the Indian Benefit Trust pending any sale, they are subject to an undertaking
Companies Act 1956 (the Leave Order) to enable the sale by UBHL that the trustees would only vote the shares at the direction of USL.
to Diageo to take place (the UBHL Share Sale) notwithstanding the (iii) Diageo has notified UBHL and its subsidiary, KFinvest, of certain
continued existence of five winding-up petitions that were pending claims that it believes it has against such parties under the SPA in
against UBHL on 9 November 2012, being the date of the SPA. relation to the matters revealed by the Initial Inquiry described in
Additional winding-up petitions have been brought against UBHL paragraph (d) below, including under provisions requiring the
since 9 November 2012, and the Leave Order did not extend to them. discharge of inter-group balances and also as a result of the non-
At the time of the completion of the UBHL Share Sale, the Leave disclosure of these matters to it during the due diligence exercise that
Order remained subject to review on appeal. However, as stated by preceded the Original USL Transaction. Diageo also believes that it
Diageo at the time of closing on 4 July 2013, it was considered may have additional claims against those parties under the SPA in
unlikely that any appeal process in respect of the Leave Order would relation to the matters revealed by the Additional Inquiry described
definitively conclude on a timely basis and, accordingly, Diageo in paragraph (d) below.
(d) USL internal inquiries, resignation of Dr Vijay Mallya from USL settlements has reversed provisions with respect to interest claimed
Strategic report
and related matters amounting to INR 265 million (£3 million). During the year ended
In a notice to the Indian stock exchange dated 4 September 2014, 31 March 2016, based on its assessment of recoverability, USL’s
USL announced that its Board of Directors had directed an inquiry management has written off INR 5,666 million (£63 million) out of the
into certain matters referred to in USL’s financial statements and the amounts provided for with respect to the relevant parties.
qualified auditor’s report for the year ended 31 March 2014 (the Initial In light of the above, and without making any determination as
Inquiry). The transactions noted in the Initial Inquiry occurred prior to to fault or culpability, the USL directors noted in the update of
Diageo gaining significant influence over USL on 4 July 2013 when 25 April 2015 that they had lost confidence in Dr Mallya continuing
it completed the transaction to purchase shares in USL to take its in his role as a director and as chairman of USL and therefore the USL
aggregate shareholding to 25.02%. USL provided an update on board called upon Dr Mallya to resign forthwith as a director and as
25 April 2015 in relation to the Initial Inquiry which covered various chairman of the board and step down from his positions in USL’s
matters, including certain doubtful receivables, advances and subsidiaries. The board of USL also resolved that, in the event
deposits. Additional updates have been provided by USL in Dr Mallya declined to step down, it would recommend to the
subsequent quarterly announcements and most recently in the shareholders of USL the removal of Dr Mallya as a director and as
announcement of their audited financial results on 26 May 2016, chairman of the board. Dr Mallya indicated at the time that he would
in respect of the year ended 31 March 2016. not tender his resignation.
As previously stated by USL, the Initial Inquiry: (a) revealed that Diageo is the majority shareholder in USL with a 54.78% holding
Governance
funds involved in many of the commercial transactions covered by the in USL. As previously announced by Diageo, it had certain contractual
Initial Inquiry were diverted from USL and/or its subsidiaries to certain obligations to support Dr Mallya continuing as Non-Executive
companies in the UBHL group, including in particular Kingfisher Director and Chairman of USL subject to certain conditions and in
Airlines Limited; (b) prima facie revealed that certain accounting the absence of certain defaults. Those matters were agreed on
entries appear to have been made and certain transactions entered 9 November 2012 as part of a broader shareholders’ agreement
into on behalf of USL appear to have been undertaken in order to and came into effect on 4 July 2013 when Diageo completed the
show a lower exposure of USL (and its subsidiaries) to UBHL than that purchase of shares to take its aggregate shareholding in USL
which actually existed at the relevant time; and (c) also identified to 25.02%.
certain additional parties and matters where documents identified Subsequent to its announcement of 25 April 2015, USL provided
raised concerns as to the propriety of certain underlying commercial its Initial Inquiry report and all related materials to Diageo. Diageo
transactions with counterparties referred to in the notes to USL’s announced on 27 April 2015 that it noted the recommendation of the
audited accounts for the year ended 31 March 2014. The Initial Inquiry USL board and was considering its position under its agreements
suggested that the manner in which these various transactions were with Dr Mallya and UBHL in light of the inquiry report and materials
conducted, prima facie, indicates various improprieties and potential provided to it.
violations of provisions, inter alia, of the Indian Companies Act, 1956 On 25 February 2016, Diageo and USL each announced that they
and the listing agreements signed by USL with various stock had entered into arrangements with Dr Mallya under which he had
exchanges in India on which its securities are listed. agreed to resign from his position as a director and as chairman of
USL has recorded provisions in an aggregate amount of USL and from his positions in USL’s subsidiaries. As specified by Diageo
approximately INR 6,712 million (£75 million) with respect to (a) above, in its announcement at that time, these arrangements ended its prior
and in an aggregate amount of approximately INR 2,368 million agreement with Dr Mallya regarding his position at USL, therefore
(£26 million) with respect to (c) above. These amounts were fully bringing to an end the uncertainty relating to the governance of USL,
provided for in the fair value balance sheet consolidated by Diageo and put in place a five-year global non-compete (excluding the
on 2 July 2014. Diageo does not expect any further material financial United Kingdom), non-interference, non-solicitation and standstill
impact on Diageo’s financial results in connection with such arrangement with Dr Mallya. As part of those arrangements, USL,
transactions. USL made provisions in its financial statements for the Diageo and Dr Mallya agreed a mutual release in relation to matters
two years ended 31 March 2014 and 31 March 2015 in respect of the arising out of the Initial Inquiry and Dr Mallya also agreed not to
issues identified by the Initial Inquiry. The audit report on the financial pursue any claims against Diageo, USL and their affiliates (including
statements of USL for the year ended 31 March 2015 was also under the prior agreement with Diageo). In evaluating entering
qualified in respect of these issues. into such arrangements, Diageo considered the impact of the
The USL board stated in its update of 25 April 2015 that it was not arrangements on USL and all of USL’s shareholders, and came to the
in a position to make any final determination with regard to the view that the arrangements were in the best interests of USL and its
position of any individuals involved and therefore directed USL to shareholders. Diageo’s agreement with Dr Mallya (the 25 February Additional information for shareholders
report the relevant transactions to the authorities as required under Agreement) provided for a payment of $75 million (£53 million) to
applicable law and to provide the Initial Inquiry report to USL’s Dr Mallya over a five year period in consideration for the five-year
auditors and other regulators. The USL board also resolved that USL global non-compete, non-interference, non-solicitation and standstill
should take the necessary steps to assess USL’s legal position and commitments referred to above, his resignation from USL and the
then take such action as is necessary to recover its funds from the termination of his appointment and governance rights, the
relevant parties to the extent possible. As previously announced by relinquishing of rights and benefits attached to his position at USL,
USL on 2 November 2015, USL has been taking steps for recovery of and his agreement not to pursue claims against Diageo and USL. The
the funds that were identified by the Initial Inquiry to have been 25 February Agreement also provided for the release of Dr Mallya’s
diverted from USL and/or its subsidiaries to the extent possible. personal obligations to indemnify DHN and Diageo Finance in
During the quarter ended 30 September 2015, USL reached a respect of any liabilities under the guarantee arrangements described
settlement with one of the parties pursuant to which the party in paragraph (a) above and his personal obligation to indemnify
withdrew claims amounting to approximately INR 279 million Diageo Finance in respect of its earlier liability (£30 million) under
(£3 million), and accordingly a provision of approximately a guarantee of certain borrowings of United Breweries Overseas
INR 279 million (£3 million) was written back. Additionally, subsequent Limited. $40 million (£28 million) of the $75 million (£53 million)
to the year ended 31 March 2016, USL has signed settlement amount was paid on signing of the 25 February Agreement with the
agreements with certain such parties and based on these balance being payable in equal instalments of $7 million (£5 million)
a year over five years, subject to and conditional on Dr Mallya’s parties and individuals, to the extent possible. The mutual release in
compliance with certain terms of the agreement. relation to the Initial Inquiry agreed by Diageo and USL with Dr Mallya
On 7 March 2016, a consortium of banks led by SBI obtained an and announced on 25 February 2016 does not extend to matters
order from the DRT in Bangalore attaching the sum of $75 million arising out of the Additional Inquiry. In addition to the notification
(£53 million) payable to Dr Mallya under the 25 February Agreement. sent by Diageo to UBHL and KFinvest in relation to the claims it
The order provides that Dr Mallya is not to draw on that sum, Diageo is believes it has against such parties under the SPA in relation to the
not to disburse such sum to Dr Mallya and Diageo is to deposit such matters revealed in the Initial Inquiry, as noted in paragraph (c)(iii)
sum with the DRT. Diageo filed an affidavit in the DRT on 5 April 2016 above, Diageo also believes it may have claims against UBHL and
explaining that the sum of $40 million (£28 million) was paid on KFinvest under the SPA in relation to the matters revealed by the
25 February 2016, prior to the order dated 7 March 2016. Diageo Additional Inquiry, including under certain provisions requiring the
further explained that no sum is presently due and payable by Diageo discharge of inter-group balances and also as a result of the non-
to Dr Mallya under the terms of the 25 February Agreement, and there disclosure of these matters to it during the due diligence exercise
can be no certainty that any amount will become due and payable that preceded the Original USL Transaction.
under the terms of the 25 February Agreement in the future because Almost all of the amounts identified in the Additional Inquiry have
of the conditional nature of the obligation. Diageo’s position is that been previously provided for or expensed in the financial statements
the order is not currently capable of being performed. Pursuant to of USL or its subsidiaries for prior periods (including by way of
an order of the DRT dated 29 April 2016, on 12 May 2016 Diageo and provisions made in relation to impairment in the value of or loss
USL filed memos with the DRT furnishing copies of their respective on sale of USL’s overseas subsidiaries). USL’s management has
agreements with Dr Mallya. On 16 July 2016, the DRT issued a recommended to the USL board that a further provision of
clarification in relation to its order dated 7 March 2016 (which forms INR 217 million (£2 million) should be made for the value of certain
part of that order), stating that: (i) if Diageo is liable to pay any amount improper transactions identified by the Additional Inquiry which
under the 25 February Agreement to Dr Mallya, such amount shall were not previously expensed or provided for. Based on the
be deposited in the DRT under the 7 March order; and (ii) if Diageo information currently available, Diageo believes that no further
is not liable to pay any amount under the 25 February Agreement to provisions are required at this stage.
Dr Mallya, Diageo does not need to deposit any amount in the DRT.
At the time of the 25 February 2016 announcement, Diageo (e) Regulatory notices in relation to USL
confirmed that, by virtue of Dr Mallya having been a director of USL, Following USL’s earlier updates concerning the Initial Inquiry as well
a subsidiary of Diageo, the arrangements described in that as in relation to the arrangements with Dr Mallya that were the
announcement, which were required to be aggregated with certain subject of the 25 February 2016 announcement, USL and Diageo
prior transactions and arrangements, constituted a smaller related have received various notices from Indian regulatory authorities,
party transaction within LR11.1.10R of the Listing Rules. Accordingly, including the Ministry of Corporate Affairs, Serious Fraud
Diageo obtained written confirmation from BofA Merrill Lynch, as Investigation Office, National Stock Exchange, Income Tax
sponsor, that the terms of the relevant arrangements were fair and Department, Enforcement Directorate, Securities and Exchange
reasonable as far as Diageo shareholders were concerned. Board of India, Bangalore police, Central Excise Intelligence and the
As previously announced by USL and as noted above, the Initial Institute of Chartered Accountants of India. Diageo and USL are
Inquiry identified certain additional parties and matters indicating the cooperating fully with the authorities in relation to these matters,
possible existence of other improper transactions. These transactions and, as noted in paragraph (d) above, USL reported the matters
could not be fully analysed during the Initial Inquiry and, accordingly, covered by the Initial Inquiry and the Additional Inquiry to the
USL, as previously announced, mandated that its Managing Director relevant authorities.
& CEO conduct a further inquiry into the transactions involving the Diageo and USL have also received notices from the Securities
additional parties and the additional matters to determine whether and Exchange Board of India (SEBI) requesting information in relation
they also suffered from improprieties (the Additional Inquiry). USL to, and explanation of the reasons for, the arrangements with
announced the results of the Additional Inquiry in a notice to the Dr Mallya that were the subject of the 25 February 2016
Indian Stock Exchange dated 9 July 2016. announcement as well as, in the case of USL, in relation to the Initial
As stated in that announcement, the Additional Inquiry revealed: Inquiry, and, in the case of Diageo, whether such arrangements with
(a) further instances of actual or potential fund diversions amounting Dr Mallya or the Watson backstop guarantee arrangements
to approximately INR 9,135 million (£102 million) as well as other described in paragraph (a) above were part of agreements previously
potentially improper transactions involving USL and its Indian and made with Dr Mallya at the time of the Original USL Transaction
overseas subsidiaries amounting to approximately INR 3,118 million announced on 9 November 2012 and the open offer made as part
(£35 million); (b) that these transactions occurred during the period of the Original USL Transaction. Diageo and USL have complied with
from October 2010 to July 2014, although certain transactions appear such information requests and Diageo has confirmed that, consistent
to have been initiated prior to that period; and (c) that these with prior disclosures, the Watson backstop guarantee arrangements
improper transactions involved the diversion of funds to certain and the matters described in the 25 February 2016 announcement
non-Indian entities in which Dr Mallya appears to have a material were not the subject of any earlier agreement with Dr Mallya. In
direct or indirect interest (including Force India Formula One, Watson respect of the Watson backstop guarantee arrangements, SEBI issued
Limited, Continental Administrative Services, Modall Securities a further notice to Diageo on 16 June 2016 that if there is any net
Limited, Ultra Dynamix Limited and Lombard Wall Corporate Services liability incurred by Diageo (after any recovery under relevant security
Inc) as well as certain Indian entities (including, in most cases, or other arrangements, which matters remain pending as noted in
Kingfisher Airlines Limited). paragraph (a) above) on account of the Watson backstop guarantee,
The USL board has, in light of these findings, and based on expert such liability, if any, would be considered to be part of the price paid
advice, directed that copies of the Additional Inquiry report be for the acquisition of USL shares under the SPA which formed part
provided to the relevant authorities and its auditors. The USL board of the Original USL Transaction and that, in that case, additional
also directed that USL should conduct a detailed review of each equivalent payments would be required to be made to those
indicated case of fund diversion to assess its legal position and then shareholders (representing 0.04% of the shares in USL) who tendered
take such action as is necessary to recover its funds from the relevant in the open offer made as part of the Original USL Transaction.
Diageo is clear that the Watson backstop guarantee arrangements $47 million (£36 million) is included in other financial assets. If TWE
Strategic report
were not part of the price paid or agreed to be paid for any USL default on their payments Diageo continue to be responsible for the
shares under the Original USL Transaction and therefore believes the lease payments to Realty. A provision has been charged to non-
decision in the SEBI notice to be misconceived and wrong in law and operating items in the year ended 30 June 2016 for the estimated
it is taking steps to appeal it. liability if TWE default on their lease commitments.
Diageo is unable to assess if the notices or enquiries referred to In respect of property not currently utilised, the group has
above will result in enforcement action or, if this were to transpire, to entered into sub-leases for which the minimum amount receivable
quantify meaningfully the possible loss or range of loss, if any, to which from operating lease is £436 million (2015 –£28 million) under the
any such action might give rise if determined against Diageo or USL. term of the contract including the receivable from TWE.
(f) SEC Inquiry There are no significant leases for which contingent rent is payable,
Diageo has received requests for information from the US Securities nor any that have purchase options, escalation clauses or restrictions.
and Exchange Commission (SEC) regarding its distribution in and Certain of the operating leases have renewal clauses which are at fair
public disclosures regarding the United States as well as additional market value.
context about the Diageo group globally. Diageo is currently
responding to the SEC’s requests for information in this matter. 20. Related party transactions
Diageo is unable to assess if the inquiry will evolve into further Transactions between the group and its related parties are made on
Governance
information requests or an enforcement action or, if this were to terms equivalent to those that prevail in arm’s length transactions.
transpire, to quantify meaningfully the possible loss or range of loss,
if any, to which any such action might give rise. (a) Subsidiaries
Transactions between the company and its subsidiaries are
(g) Other eliminated on consolidation and therefore are not disclosed. Details
The group has extensive international operations and is the defendant of the principal group companies are given in note 21.
in a number of legal, customs and tax proceedings incidental to these
operations, the outcome of which cannot at present be foreseen. (b) Associates and joint ventures
In particular, the group is currently the defendant in various customs Sales and purchases to and from associates and joint ventures are
proceedings that challenge the declared customs value of products principally in respect of premium drinks products but also include
imported by certain Diageo companies. Diageo continues to defend the provision of management services.
its position vigorously in these proceedings. Transactions and balances with associates and joint ventures are
Save as disclosed above, neither Diageo, nor any member of the set out in the table below:
Diageo group, is or has been engaged in, nor (so far as Diageo is 2016 2015 2014
aware) are there pending or threatened by or against it, any legal or £ million £ million £ million
arbitration proceedings which may have a significant effect on the Income statement items
financial position of the Diageo group. Sales 31 117 156
Purchases 36 85 89
19. Commitments Balance sheet items
(a) Capital commitments
Group payables 5 3 8
Commitments for expenditure on intangibles and property, plant
Group receivables 2 11 12
and equipment not provided for in these consolidated financial
statements are estimated at £87 million (2015 – £114 million; 2014 – Loans payable 6 6 7
£162 million). Loans receivable 2 2 41
Cash flow items
(b) Operating lease commitments Loans and equity contributions, net – 26 25
The minimum lease rentals to be paid under non-cancellable leases,
principally in respect of properties, are as follows: Other disclosures in respect of associates and joint ventures are
included in note 6.
2016 2015
Payments falling due:
(c) Key management personnel
The key management of the group comprises the Executive and
Within one year 92 96 Additional information for shareholders
Non-Executive Directors, the members of the Executive Committee
Between one and two years 94 70
and the Company Secretary. They are listed under ‘Board of Directors
Between two and three years 81 61 and Company Secretary’ and ‘Executive Committee’.
Between three and four years 70 51
2016 2015 2014
Between four and five years 63 51 £ million £ million £ million
After five years 407 217 Salaries and short term
807 546 employee benefits 11 9 9
Annual incentive plan 9 4 2
On 1 January 2016, Diageo completed the North American wines Non-Executive Directors’ fees 1 1 1
transaction with Treasury Wine Estates (TWE). As part of this Share-based payments(i) 7 9 13
transaction Diageo sub-let the North American vineyards to TWE
Post employment benefits(ii) 2 2 2
which continue to be leased from Realty Income Corporation (Realty).
Termination benefits 2 1 –
The terms of the sub lease to TWE are identical to the principal lease
and the future lease commitments are included in finance lease 32 26 27
liabilities ($47 million (£36 million)) and operating lease commitments (i) Time-apportioned fair value of unvested options and share awards.
($541 million (£407 million)). The finance lease receivable from TWE of (ii) Includes the cash allowance in lieu of pension contributions.
Non-Executive Directors do not receive share-based payments or post employment benefits. Details are given in the Directors’ remuneration
report of the individual Directors’ remuneration and transactions between the group and key management personnel.
(d) Pension plans

The Diageo pension plans are recharged with the cost of administration services provided by the group to the pension plans and with
professional fees paid by the group on behalf of the pension plans. The total amount recharged for the year was £16 million (2015 – £13 million;
2014 – £17 million).
(e) Directors’ remuneration

2016 2015 2014
Salaries and benefits 2 2 3
Annual incentive plan 2 1 –
Non-Executive Directors’ fees 1 1 1
Share option exercises(i) – – 4
Shares vesting(i) 5 5 7
Post employment benefits(ii) 1 1 1
11 10 16
(i) Gains on options realised in the year and the benefit from share awards, calculated by using the share price applicable on the date of exercise of the share options and release of the awards.
(ii) Includes the cash allowance in lieu of pension contributions.
Details of the individual Directors’ remuneration are given in the Directors’ remuneration report.
21. Principal group companies

The companies listed below include those which principally affect the profits and assets of the group. The operating companies listed below
may carry on the business described in the countries listed in conjunction with their subsidiaries and other group companies.
Percentage
Country of Country of of equity
incorporation operation owned(i) Business description
Subsidiaries
Diageo Ireland Republic of Ireland Worldwide 100% Production, marketing and distribution of
premium drinks
Diageo Great Britain Limited England Worldwide 100% Marketing and distribution of premium drinks
Diageo Scotland Limited Scotland Worldwide 100% Production, marketing and distribution of
premium drinks
Diageo Brands B.V. Netherlands Worldwide 100% Marketing and distribution of premium drinks
Diageo North America, Inc. United States Worldwide 100% Production, importing, marketing and
distribution of premium drinks
United Spirits Limited(ii) India India 54.78% Production, importing, marketing and
distribution of premium drinks
Diageo Capital plc(iii) Scotland United Kingdom 100% Financing company for the group
Diageo Finance plc(iii) England United Kingdom 100% Financing company for the group
Diageo Investment Corporation United States United States 100% Financing company for the US group
Mey İçki Sanayi ve Ticaret A.Ş. Turkey Turkey 100% Production, marketing and distribution of
premium drinks
Associates
Moët Hennessy, SNC(iv) France France 34% Production, marketing and distribution of
premium drinks
(i) All percentages, unless otherwise stated, are in respect of holdings of ordinary share capital and are equivalent to the percentages of voting rights held by the group.
(ii) Excluding 2.38% owned by the USL Benefit Trust.
(iii) Directly owned by Diageo plc.
(iv) French partnership.
(1) Diageo Finance B.V. (Netherlands) is a wholly-owned finance subsidiary of the group. As at 30 June 2016, there were no outstanding securities issued by Diageo Finance B.V.
Financial statements of the company: Company balance sheet DIAGEO Annual Report 2016 143
COMPANY BALANCE SHEET OF DIAGEO PLC
Strategic report
30 June 2015
30 June 2016 (restated)
Notes £ million £ million £ million £ million
Fixed assets
Investment in subsidiaries 3 27,038 27,042
Current assets
Debtors – due after one year
Deferred tax assets 5 71 –
Post employment benefit assets 6 33 404
Debtors – due within one year
Amounts owned by group undertakings 2,048 945
Other debtors 6 11
Governance
Cash and cash equivalents 3 3
2,738 1,713
Creditors – due within one year
Other creditors (82) (54)
(199) (115)
Net current assets 2,539 1,598
Total assets less current liabilities 29,577 28,640
Creditors – due after one year
Amounts owed to group undertakings (9,576) (8,576)
Other creditors (12) (12)
Deferred tax liabilities 5 – (7)
Post employment benefit liabilities 6 (179) (107)
(10,403) (9,215)
Net assets 19,174 19,425
Equity
Share capital (2,754 million shares of 28101⁄108 pence each) 9 797 797
Share premium 1,347 1,346
Merger reserve 9 9,161 9,161
Other reserves 3,146 3,146
Retained earnings 4,723 4,975
Total equity 19,174 19,425
Figures at 30 June 2015 have been restated following the adoption of FRS 101. See note 1 to the financial statements.
The accompanying notes are an integral part of these parent company financial statements.
These financial statements were approved by a duly appointed and authorised committee of The Board of Directors on 27 July 2016 and
were signed on its behalf by Ivan Menezes and Kathryn Mikells, Directors.
Company registration number No. 23307

144 DIAGEO Annual Report 2016 Financial statements of the company: Statement of changes in equity
STATEMENT OF CHANGES IN EQUITY FOR DIAGEO PLC

Retained earnings
Capital
Share Share Merger redemption Own Other Total
capital premium reserve reserve shares reserve Total equity
At 30 June 2014 as previously reported 797 1,345 9,161 3,146 (2,280) 6,793 4,513 18,962
Adoption of FRS 101 (note 1) – – – – – 103 103 103
At 30 June 2014 (restated) 797 1,345 9,161 3,146 (2,280) 6,896 4,616 19,065
Profit for the year (restated) – – – – – 1,534 1,534 1,534
Other comprehensive income – – – – – 134 134 134
Employee share schemes – – – – 52 (58) (6) (6)
Share-based incentive plans – – – – – 35 35 35
Tax on share-based incentive plans – – – – – 3 3 3
Shares issued – 1 – – – – – 1
Dividends paid – – – – – (1,341) (1,341) (1,341)
At 30 June 2015 (restated) 797 1,346 9,161 3,146 (2,228) 7,203 4,975 19,425
Profit for the year – – – – – 1,526 1,526 1,526
Other comprehensive loss – – – – – (368) (368) (368)
Employee share schemes – – – – 39 (38) 1 1
Share-based incentive plans – – – – – 29 29 29
Tax on share-based incentive plans – – – – – 3 3 3
Shares issued – 1 – – – – – 1
Dividends paid – – – – – (1,443) (1,443) (1,443)
At 30 June 2016 797 1,347 9,161 3,146 (2,189) 6,912 4,723 19,174
Figures for the year ended 30 June 2015 have been restated following the adoption of FRS 101. See note 1 to the financial statements.
The accompanying notes are an integral part of these parent company financial statements.
Financial statements of the company: Notes to the company financial statements DIAGEO Annual Report 2016 145
NOTES TO THE COMPANY FINANCIAL
Strategic report
STATEMENTS OF DIAGEO PLC
1. Accounting policies of the company
Basis of preparation
The financial statements of Diageo plc (the company) are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101). The company has applied IFRS 1 for the first time for the year ended 30 June 2016 and has restated its comparative
information.
In preparing these financial statements, the company applies the recognition, measurement, and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (IFRS), but makes amendments where necessary in order to comply with the Companies
Act 2006 and has excluded certain information as permitted by FRS 101.
The financial statements are prepared on a going concern basis under the historical cost convention, except for certain financial
instruments which are stated at their fair value.
By virtue of section 408 of the Companies Act 2006 the company is exempt from presenting a statement of income and disclosing
employee numbers and staff costs. The company has taken advantage of the exemption under FRS 101 from preparing a cash flow statement
and related notes, disclosures in respect of transactions and the capital management of wholly owned subsidiaries, the effects of new but not
Governance
yet effective IFRSs, an additional balance sheet at 1 July 2014 and disclosures in respect of the compensation of Key Management Personnel.
Adjustments arising on transition to FRS 101

The accounting policies disclosed below have been applied in preparing the financial statements for the year ended 30 June 2016 and the
comparative information for the year ended 30 June 2015. The company’s date of transition to IFRS 101 was 1 July 2014.
In preparing its FRS 101 balance sheet, the company has adjusted amounts reported previously in financial statements prepared in
accordance with its old basis of accounting (old UK GAAP). The adjustments required on adoption of FRS 101 were
(a) to bring the UK post employment plans net asset/(deficit) and the associated deferred tax, for which Diageo plc is the sponsoring
company, onto the balance sheet
(b) to adjust for deferred tax and current tax on changes in the share price on share options issued to employees which were not required
under old UK GAAP.
As at 30 June 2015
(a) (b)
Deferred tax
and current
tax on
As previously Post share-based
reported employment payments As restated
Deferred tax 50 (60) 3 (7)
Post employment benefit assets – 404 – 404
Post employment benefit liabilities (4) (103) – (107)
Other net assets 19,135 – – 19,135
Net assets 19,181 241 3 19,425
Retained earnings as at 30 June 2014 3,201 98 5 3,304
Movement in retained earnings – – 3 3
Profit for the year 1,530 9 (5) 1,534
Other comprehensive income – 134 – 134
Other equity 14,450 – – 14,450
Total equity 19,181 241 3 19,425

146 DIAGEO Annual Report 2016 Financial statements of the company: Notes to the company financial statements
As at 30 June 2014
(a) (b)
Deferred tax
and current
tax on
As previously Post share-based
reported employment payments As restated
Deferred tax 61 (25) 5 41
Post employment benefit assets – 221 – 221
Post employment benefit liabilities (4) (98) – (102)
Other net assets 18,905 – – 18,905
Net assets 18,962 98 5 19,065
Retained earnings 4,513 98 5 4,616
Other equity 14,449 – – 14,449
Total equity 18,962 98 5 19,065
Investment in subsidiaries Taxation

Investments in subsidiaries are stated at historical cost less Current tax is based on taxable profit for the year. This requires an
impairment provisions for any permanent decrease in value. The estimation of the current tax liability together with an assessment of
carrying amounts of the company’s investments are reviewed at the timing differences which arise as a consequence of different
each reporting date to determine whether there is an indication of accounting and tax treatments. Full provision for deferred tax is made
impairment. If such an indication exists, then the asset’s recoverable for timing differences between the recognition of gains and losses in
amount is estimated. Losses are recognised in the statement of the financial statements and their recognition in tax computations.
income and reflected in an allowance against the carrying value. The amount of deferred tax reflects the expected recoverable amount
When a subsequent event causes the amount of impairment loss to and is based on the expected manner of realisation or settlement of
decrease, the decrease in impairment loss is reversed through the the carrying amount of assets and liabilities, using the basis of taxation
statement of income. enacted or substantively enacted by the balance sheet date. The
company does not discount these balances. Tax benefits are not
Dividends paid and received recognised unless it is probable that the tax positions are sustainable.
Dividends are included in the financial statements in the financial Once considered to be probable, management reviews each material
year in which they are approved. Dividends received are included tax benefit to assess whether a provision should be taken against full
in the financial statements in the year in which they are receivable. recognition of the benefit on the basis of potential settlement
through negotiation and/or litigation. Any interest and penalties
Share-based payments – employee benefits on tax liabilities are provided for in the tax charge.
The company’s accounting policy is the same as set out in note 17
to the consolidated financial statements. Where the company grants Financial instruments
options over its own shares to the employees of its subsidiaries, it Derivative financial instruments are recognised in the balance sheet
generally recharges the cost to the relevant group company. Where at fair value calculated using discounted cash flow techniques based
the amount is not recharged the value of the options is recognised on market data applied consistently for similar types of instruments.
as capital contribution to the subsidiaries and increases the cost Changes in the fair value of derivatives are reported in the statement
of investment. of income. Gains and losses on derivatives that do not qualify for
hedge accounting treatment are taken to the statement of income
Pensions and other post employment benefits as they arise.
The company’s accounting policy is the same as set out in note 13 Significant assumptions underlying the valuation models and
to the consolidated financial statements. techniques used are disclosed in note 15 to the consolidated financial
The company acts as sponsor of a number of UK post statements.
employment plans for the benefit of employees and former Amounts owed to and from other group companies are reported
employees throughout the group. It is not possible to allocate the at initial cost, subject to impairment, as they are repayable on
assets and liabilities of these UK pension plans between individual demand.
companies of the Diageo group and therefore the fair value of the
plans’ assets less the present value of the plans’ liabilities are Financial guarantee contract liabilities
disclosed as an asset or liability on the company’s balance sheet. Financial guarantee contract liabilities are measured initially at their
The net income charge comprises the cost of accruing pension fair values and are subsequently measured at amortised cost.
benefits promised to employees of the company over the year,
aggregated with the net asset/deficit on the plans at the beginning Critical accounting estimates and judgements
of the financial year, adjusted for cash flows in the year, multiplied The company’s critical accounting policies, which the directors
by the discount rate for plan liabilities. Any differences due to consider are of greater complexity and/or particularly subject to the
changes in assumptions or experience are recognised in other exercise of judgements are generally the same as those disclosed in
comprehensive income. note 1 to the consolidated financial statements. A critical accounting
estimate, specific to the company, is the assessment that the
recoverable amount of the company’s investment in subsidiaries
is greater than the carrying amount.
2. Statement of income 5. Deferred tax assets and liabilities
Strategic report
Note 3 to the consolidated financial statements provides details of The amounts of deferred tax accounted for in the balance sheet
the remuneration of the company’s auditor for the group. comprises the following net deferred tax assets/(liabilities):
Information on directors’ emoluments, share and other interests, Post Other
transactions and pension entitlements is included in the directors’ employment temporary
plans differences Total
remuneration report in this Annual Report. £ million £ million £ million
At 30 June 2014 as previously
3. Investment in subsidiaries reported – 61 61
£ million Adoption of FRS 101 (25) 5 (20)
Cost less provisions At 30 June 2014 (restated) (25) 66 41
At 30 June 2015 27,042 Recognised in statement of
Additions (a) 2 income (1) (10) (11)
Disposal (a)(b) (6) Recognised in other
comprehensive income
At 30 June 2016 27,038 and equity (34) (3) (37)
At 30 June 2015 (restated) (60) 53 (7)
Investments in subsidiaries are stated at historical cost of £27,324 Recognised in statement of
Governance
million (2015 – £27,328 million) less impairment provisions of £286 income (1) (11) (12)
million (2015 – £286 million). Recognised in other
comprehensive income
(a) Investment in subsidiaries include £124 million (2015 – £126
and equity 89 1 90
million) of costs in respect of share-based payments, granted
At 30 June 2016 28 43 71
to subsidiary undertakings which were not recharged to the
subsidiaries. In the year ended 30 June 2016 the company
recognised additions of £2 million in respect of options not Deferred tax on other temporary differences includes assets in
recharged and £4 million in respect of share options granted respect of the UK Thalidomide Trust liability of £35 million
to employees of subsidiaries that were disposed. (2015 – £36 million) and share-based payment liabilities of
(b) On 14 June 2016, the company sold 100% of the shares, that had £7 million (2015 – £6 million).
a book value of £2 million, that it owned in Diageo Global Supply
IBC Limited to a subsidiary group undertaking resulting in a gain 6. Post employment benefits
of £33 million. The movement in the net (deficit)/surplus for the two years ended
30 June 2016, for all UK post employment plans for which the
A list of group companies as at 30 June 2016 is provided in note 10. company is the sponsor, is set out below:
4. Other financial assets and liabilities Net
Plan Plan (deficit)/
At 30 June 2016, financial assets and liabilities comprise the fair value assets liabilities surplus
of interest rate swaps and cross currency interest rate swaps with £ million £ million £ million
subsidiary undertakings, where the company acts as an intermediary At 30 June 2014* 5,483 (5,364) 119
between group companies, therefore it is not expected that there Sale of businesses – 3 3
will be any net impact on future cash flows. Charge before taxation 224 (286) (62)
The company recognised a gain of £2 million (2015 – £4 million) Other comprehensive income/(loss) 335 (196) 139
in the statement of income due to changes in fair value of derivatives Contributions by group companies 98 – 98
in relation to a Dutch subsidiary, which expired prior to 30 June 2016. Employee contributions 1 (1) –
Information on financial risk management for the group is Benefits paid (219) 219 –
presented in note 15 to the consolidated financial statements.
At 30 June 2015 5,922 (5,625) 297
Sale of businesses – 2 2
Charge before taxation 216 (266) (50)
Other comprehensive income/(loss) 98 (586) (488)
Contributions by group companies 93 – 93 Additional information for shareholders
Employee contributions 1 (1) –
Benefits paid (283) 283 –
At 30 June 2016 6,047 (6,193) (146)
* Under old UK GAAP the post employment liability as at 30 June 2014 was £4 million.
The balance sheet analysis of the post employment plans is as follows:

2016 2015
Non- Non- Non- Non-
current current current current
assets liabilities assets liabilities
Funded plans 33 (80) 404 –
Unfunded plans – (99) – (107)
33 (179) 404 (107)
Additional information on the UK post employment plans and the principal risks and assumptions applicable is disclosed in note 13 to the
consolidated financial statements.
7. Provisions 9. Shareholders’ funds

A provision was established in the year ended 30 June 2005 in (a) Merger reserve
respect of the discounted value of the company’s commitment to On the acquisition of a business, or of an interest in an associate, fair
the UK Thalidomide Trust, and will be utilised over the period of the values, reflecting conditions at the date of acquisition, are attributed
commitment up to 2037. to the net assets acquired. Where merger relief is applicable under
£ million
the UK Companies Acts, the difference between the fair value of the
business acquired and the nominal value of shares issued as purchase
At 30 June 2015 178
consideration is treated as a merger reserve.
Provision utilised during the year (10)
Transfer to creditors (2) (b) Own shares
Unwinding of discounts 10 At 30 June 2016 own shares comprised 7 million ordinary shares
At 30 June 2016 176 held by employee share trusts (2015 – 8 million; 2014 – 10 million);
223 million ordinary shares repurchased and held as treasury shares
(2015 – 223 million; 2014 – 223 million); and 14 million ordinary
At 30 June 2016 £9 million (2015 – £12 million) of the provision is
shares held as treasury shares for hedging share scheme grants
current and £167 million (2015 – £166 million) is non-current.
(2015 – 17 million; 2014 – 20 million).
As at 30 June 2016 Guinness Ireland Group Pension Scheme held
8. Financial guarantees
30,369 ordinary shares of Diageo plc (2015 – 30,369) shares.
The company has guaranteed certain borrowings of subsidiaries
Information on movements in own shares is provided in note 17(c)
which at 30 June 2016 amounted to £9,048 million (2015 – £8,966
to the consolidated financial statements.
million). The company also provides a guarantee in respect of lease
payments to the lessor of a number of vineyards in the United States,
(c) Retained earnings
formerly owned by the group, until December 2040 of £550 million
The net balance on retained earnings is available for the payment
(2015 – £311 million).
of dividends.
The company has also provided irrevocable guarantees relating to
the liabilities of certain of its Irish and Dutch subsidiaries. In addition,
the company has provided a guarantee to the Guinness Ireland
Group Pension Scheme.
The Directors do not expect the company to be liable for any
legal obligation in respect of these financial guarantee agreements,
and they have been recognised at nil fair value.
10. Group companies Diageo Finance Australia LLP (England)
Strategic report
In accordance with Section 409 of the Companies Act 2006 a full list Diageo Finance B.V. (Netherlands)
Diageo Finance plc(i) (England)
of subsidiaries, partnerships, associates, joint ventures and joint Diageo Finance US Limited (England)
arrangements, the country of incorporation and the effective Diageo Financing Turkey Limited (England)
percentage of equity owned, as at 30 June 2016 are disclosed below. Diageo France Holdings SAS (France)
Diageo France Investments SAS. (France)
Unless otherwise stated the share capital disclosed comprises
Diageo France S.A.S. (France)
ordinary shares which are indirectly held by Diageo plc. Diageo Germany GmbH (Germany)
Diageo Ghanaian Holdings B.V. (Netherlands)
Fully owned subsidiaries Diageo Global Supply IBC Limited(i) (Northern Ireland)
1759 Property Limited (Republic of Ireland) Diageo Great Britain Limited (England)
Agropecuarias Las Marias I, C.A. (Venezuela) Diageo Greater China Limited(ii) (Hong Kong)
AGS Employee Shares Nominees (Ireland) Limited (Republic of Ireland) Diageo Group Insurance Company Limited (Guernsey)
Alexander & James B.V. (Netherlands) Diageo GTME Pte Ltd (Singapore)
Allegro GmbH & Co.KG (Germany) Diageo Healthcare Limited(ii) (England)
Allegro Verwaltungs GmbH (Germany) Diageo Hellas S.A. (Greece)
Anyslam Investments (England) Diageo Highlands B.V. (Netherlands)
Anyslam Limited(i), (viii) (England) Diageo Highlands Holding B.V. (Netherlands)
Arran Tradings, C.A. (Venezuela) Diageo Holdings Limited(i) (England)
Arthur Bell & Sons Limited(ii) (Scotland) Diageo Holdings Netherlands B.V. (Netherlands)
Governance
Arthur Guinness Son & Company (Dublin)(ii) (Republic of Ireland) Diageo Holland Investments Limited(ii) (England)
Atalantaf Limited (Bermuda) DIAGEO HUNGARY FINANCE Limited Liability Company (Hungary)
Ballroom Acquisition, Inc. (United States) DIAGEO Hungary Marketing Services Limited Liability Company (Hungary)
Beijing Johnnie Walker House Ltd (China) Diageo Inc. (United States)
Bundaberg Distilling Company Pty. Limited(v) (Australia) Diageo India Private Limited (India)
Bundaberg Distilling Investments Pty Ltd(iii) (Australia) Diageo Investment Corporation (United States)
Carillon U.K. Limited(ii) (Scotland) Diageo Investment Holdings B.V. (Netherlands)
Cellarers (Wines) Limited (England) Diageo Investment Holdings Limited (England)
CJSC D Distribution (Russia) Diageo Ireland (Republic of Ireland)
CJSC IDV Selviac(ii) (Russia) Diageo Ireland Finance 1 (Republic of Ireland)
Clyde Trading, C.A.(v) (Venezuela) Diageo Ireland Finance 2 (Republic of Ireland)
Crescendo Australia Pty Ltd(iii) (Australia) Diageo Ireland Finance 3 (Republic of Ireland)
Cupar Trading, C.A.(v) (Venezuela) Diageo Ireland Finance Unlimited Company (Republic of Ireland)
D.C.L (Holdings) Australia Proprietary Limited(ii), (iii) (Australia) Diageo Ireland Holdings (Republic of Ireland)
Deasy & Co. Limited(ii) (Republic of Ireland) Diageo Ireland Pension Trustee Designated Activity Company (Republic of Ireland)
DEF Investments Limited (England) Diageo Ireland Quebec Distribution Inc. (Canada)
DIAGEO – Guinness USA Inc. (United States) Diageo Italia S.p.A. (Italy)
Diageo (IH) Limited(ii) (England) Diageo Jamaica Limited (Jamaica)
Diageo (Shanghai) Limited (China) Diageo Japan K.K (Japan)
Diageo Africa B.V. (Netherlands) Diageo Kazakhstan LLP. (Kazakhstan)
Diageo Kenya Limited (Kenya)
Diageo Americas Supply Quebec Distribution Inc. (Canada)
Diageo Americas Supply, Inc. (United States) Diageo Korea Company Limited (South Korea)
Diageo Americas, Inc. (United States) Diageo Latin America & Caribbean LLC (United States)
Diageo Angola Limitada (Angola) Diageo Lebanon Holding SAL (Lebanon)
Diageo Asia Pacific Shared Services Centre Limited, Inc. (Philippines) Diageo Mexico Comercializadora S.A. de C.V. (Mexico)
Diageo Atlantic B.V. (Netherlands) Diageo Mexico II, S.A. de C.V. (Mexico)
Diageo Australia Limited(iii) (Australia) Diageo Mexico S.A. de C.V. (Mexico)
Diageo Austria GmbH (Austria) Diageo Mozambique Lda. (Mozambique)
Diageo Balkans Limited (England) Diageo Nederland B.V. (Netherlands)
Diageo Belgium N.V. (Belgium) Diageo New Zealand Limited(iii) (New Zealand)
Diageo Brands B.V. (Netherlands) Diageo North America Foundation, Inc. (United States)
Diageo Brands Holdings B.V. (Netherlands) Diageo North America, Inc.(v) (United States)
Diageo Brands Nigeria Ltd (Nigeria) Diageo Northern Ireland Limited(i) (Northern Ireland)
Diageo Brasil Ltda (Brazil) Diageo Norway AS (Norway)
Diageo Bulgaria Ltd (Bulgaria) Diageo Nueva Esparta, C.A. (Venezuela)
Diageo Business Services India Private Limited (India) Diageo Operations Italy S.p.A. (Italy)
DIAGEO Business Services Limited (Hungary) Diageo Overseas B.V. (Netherlands)
Diageo Canada Holdings Inc. (Canada) Diageo Overseas Holdings Limited(vi) (England)
Diageo Canada Inc. (Canada) Diageo Panama S.A. (Panama)
Diageo Capital plc(i) (Scotland) Diageo Paraguay S.R.L. (Paraguay)
Diageo Chile Limitada (Chile) Diageo Peru S.A. (Peru) Additional information for shareholders
Diageo China Limited (China) Diageo Philippines Free Port Inc(ii) (Philippines)
Diageo CL1 Limited (England) Diageo Philippines, Inc (Philippines)
Diageo Colombia S.A. (Colombia) Diageo Polska LLC (Poland)
Diageo Costa Rica S.A. (Costa Rica) Diageo Portugal – Distribuidora de Bebidas, Unipessoal, Lda (Portugal)
Diageo Czech Marketing Services LLC (Czech Republic) Diageo Premier Holdings B.V. (Netherlands)
Diageo Dağıtım Satış Ve Pazarlama A.Ş.(ii) (Turkey) Diageo Puerto Rico, Inc (Puerto Rico)
Diageo de Argentina S.A. (Argentina) Diageo Reunion 2 SAS(ii) (La Reunion)
Diageo Del Peru S.A. (Peru) Diageo Reunion SA (La Reunion)
Diageo Denmark AS (Denmark) Diageo RTD Hong Kong Limited (Hong Kong)
Diageo Distilleries Private Limited(vii) (India) Diageo Scotland Investment Limited (England)
Diageo Distilling Limited(ii) (Scotland) Diageo Scotland Limited (Scotland)
Diageo Dominicana S.R.L (Dominican Republic) Diageo Share Ownership Trustees Limited(i), (ii) (England)
Diageo DV Limited (England) Diageo Singapore Pte Ltd. (Singapore)
Diageo Eire Finance & Co (England) Diageo Singapore Supply Pte. Ltd. (Singapore)
Diageo Employee Shares Nominees Limited(i), (ii) (England) Diageo South Africa (Pty) Limited (South Africa)
Diageo Espana S.A. (Spain) Diageo Southern Africa Markets (Pty) Ltd (South Africa)
Diageo Europe Holdings Limited (Republic of Ireland) Diageo Suisse S.A. (Switzerland)
Diageo Export SR Inc.(ii) (Philippines) Diageo Supply Marracuene Lda. (Mozambique)
Diageo Sweden AB (Sweden) Nangor Holdings(ii), (iii) (Republic of Ireland)

Diageo Taiwan Inc. (Panama) National Sorghum Breweries Properties Proprietary Limited(ii) (South Africa)
Diageo Treasury Australia LLP (England) Newshelf 1167 Proprietary Limited(v) (South Africa)
Diageo Turkey Holdings Limited (Republic of Ireland) Nicholas Doyle (New Ross) Limited(ii) (Republic of Ireland)
Diageo UK Turkey Finance Limited (England) North Island United Enterprise Holdings Inc(ii) (Philippines)
Diageo UK Turkey Holdings Limited(vi) (England) Otford Estates Limited (England)
Diageo UK Turkey Limited (England) Phenix Gabon SARL(ii) (Gabon)
Diageo Ukraine LLC (Ukraine) Powtom 11 Limited (Republic of Ireland)
Diageo United Kingdom Limited(ii) (England) Powtom 12 Limited (Republic of Ireland)
Diageo Uruguay SA (Uruguay) Powtom 13 Limited (Republic of Ireland)
Diageo US Holdings (England) Powtom 14 Limited (Republic of Ireland)
Diageo US Investments (England) Powtom 16 Limited (Republic of Ireland)
Diageo US Turkey LLC (United States) Powtom 17 Limited (Republic of Ireland)
Diageo USVI, Inc. (United States) Powtom 18 Limited (Republic of Ireland)
Diageo Venezuela C.A (Venezuela) Powtom 19 Limited (Republic of Ireland)
Diageo Vietnam (Vietnam) Powtom 20 Limited (Republic of Ireland)
Don Julio Agavera S.A. de C.V. (Mexico) PSP (Sales and Distribution) Limited(ii) (England)
Don Julio Agricultura Servicios S.A. De C.V. (Mexico) PT Gitaswara Indonesia(ix) (Indonesia)
DV Paraguana, C.A. (Venezuela) PT Langgeng Kreasi Jayaprima (Indonesia)
DV Release, C.A. (Venezuela) R & A Bailey & Co (Republic of Ireland)
DV Trading, C.A.(v) (Venezuela) R&A Bailey Pension Trustee Company Limited(i), (ii) (Republic of Ireland)
E. Smithwick & Sons Limited(ii) (Republic of Ireland) Relay B.V.(v) (Netherlands)
Franchise Acceptance Corporation(ii) (Republic of Ireland) Reldann Investments No. 12 Proprietary Limited(ii) (South Africa)
Gilbey Canada Investments Limited (Canada) S & B Production Limited (Northern Ireland)
Gilbeys New Zealand Limited (New Zealand) Seagram Ukraine Limited(ii) (Ukraine)
Gilbeys of Ireland (R&D) Limited (Republic of Ireland) Selviac Nederland B.V. (Netherlands)
Gilbeys of Ireland Limited (Republic of Ireland) Servicios Agavera, S.A.de C.V. (Mexico)
Global Farming Initiative B.V. (Netherlands) Sichuan Chengdu Shuijingfang Group Co., Ltd (China)
Grand Metropolitan (Cayman Islands) Limited(ii) (Cayman Islands) Skye Trading, C.A. (Venezuela)
Grand Metropolitan Capital Company Limited (England) St. James’s Gate Trading Company(ii) (Republic of Ireland)
Grand Metropolitan Estates Limited (England) Streetcar Investment Holding Pte. Ltd. (Singapore)
Grand Metropolitan Holdings Limited(ii) (England) Sumagro Limited(ii) (Tanzania)
Grand Metropolitan International Holdings Limited (England) Tanqueray Gordon and Company, Limited(i) (England)
Grand Metropolitan Limited (England) Tequila Don Julio Servicios, S.A. de C.V. (Mexico)
Grandmet Foods (UK) Limited(ii) (England) The Bulleit Distillery, Inc. (United States)
Guinness Cameroun S A (Cameroon) The Connacht Mineral Water Company Limited (Republic of Ireland)
Guinness Exports Limited(ii) (England) The Distillers Company (Biochemicals) Limited(ii) (England)
Guinness France Holdings S.A.S (France) The Pierre Smirnoff Company Limited(v) (United States)
Guinness Hopstore Limited(ii) (Republic of Ireland) The Pimm’s Drinks Company Limited(ii) (England)
Guinness Limited(i) (England) Trelawny Estates Limited (Jamaica)
Guinness Overseas Holdings Limited(i) (England) UDV (SJ) Holdings Limited(i) (England)
Guinness Overseas Limited (England) UDV (SJ) Limited (England)
Guinness Storehouse Ireland Pension Trustees Limited (Republic of Ireland) UDV Ireland Group (Trustees) Limited (Republic of Ireland)
Guinness Storehouse Limited (Republic of Ireland) UDV Ireland Group Unlimited Company (Republic of Ireland)
Guinness UDV Korea Limited(ii) (South Korea) UDV Operations Ireland Limited(ii) (Republic of Ireland)
Guinness Ventures Limited (Republic of Ireland) United Beverages Pension Trustees Limited (Republic of Ireland)
Harp Ireland Limited(ii) (Republic of Ireland) United Beverages Sales Limited(ii) (Republic of Ireland)
Horizon Developments Limited(ii) (Cyprus) United Distillers & Vintners (SJ) B.V. (Netherlands)
International Distillers – Zimbabwe (Private) Limited(ii) (Zimbabwe) United Distillers & Vintners Philippines Inc (Philippines)
Irish Ale Breweries (Republic of Ireland) United Distillers (Guernsey) Limited (Guernsey)
Irish Ale Breweries (Sales) Limited(ii) (Republic of Ireland) United Distillers Canada Inc. (Canada)
Irish Ale Breweries Holdings(iii) (Republic of Ireland) United Distillers France Limited(ii) (England)
Islay Trading, C.A. (Venezuela) United Distillers France SAS (France)
J & B Scotland Limited(ii) (Scotland) United Distillers Investments Limited(ii) (England)
James Buchanan & Company Limited(ii) (England) United Distillers Southern Africa (Proprietary) Limited (South Africa)
John Haig & Company Limited (Scotland) United Distillers UK plc(ii) (Scotland)
John Walker and Sons Limited(ii) (England) United National Breweries (SA) Proprietary Limited (South Africa)
Joseph E. Seagram & Sons Limited(ii), (iii) (Canada) Ursus Vodka Holding N.V. (Netherlands)
Jus-Rol Limited(ii) (England) Vast Fund Limited (Hong Kong)
Justerini & Brooks, Limited (England) Vignobles Internationaux S.A.S. (France)
L4L Trading, C.A. (Venezuela) W. & A. Gilbey Limited(ii) (England)
Lamington Company(ii) (Republic of Ireland) Wed.A.P.Boonekamp B.V. (Netherlands)
Lismore Trading, C.A. (Venezuela) Werneth Mould Engineering Limited(ii) (England)
LLC Diageo Brands Distributors (Russia) William Sanderson and Son Limited(ii) (Scotland)
Macardle Moore & Company Limited(ii) (Republic of Ireland) Winchester House Property Company Limited (England)
Meta Abo Brewery Share Company (Ethiopia) Ypióca Agricola LTDA (Brazil)
Mey Alkollü İçkiler Sanayi ve Ticaret A.Ş. (Turkey) Ypióca industrial de Bebidas S.A. (Brazil)
Mey İçki Sanayi ve Ticaret A.Ş. (Turkey) Zepf Technologies UK Limited (Scotland)
Mull Trading, C.A. (Venezuela) Zeta Importers, C.A.(v) (Venezuela)
Myers Rum Company (Jamaica) Limited(ii) (Jamaica)
Subsidiaries where the effective interest is less than 100%(ix) Associates
Strategic report
Allsopp (East Africa) Limited(ii) (Kenya, 48.52%) Ballindalloch Distillery LLP (Scotland, 33.33%)
AÑEJOS DE ALTURA, SOCIEDAD ANÓNIMA (Guatemala, 50%) Ban Poitin Ltd (England, 20%)
Asian Opportunities and Investment Limited(xi) (Mauritius, 54.78%) Belsazar GmbH (Germany, 20%)
California Simulcast Inc(ii) (United States, 80%) Canbrew B.V.(iv) (Netherlands, 28.16%)
Chengdu Jianghai Trade Development Co. Limited (China, 39.71%) Clarendon Distillers Limited (Jamaica, 27%)
Chengdu Jiayuan Jiuye Marketing Co. Limited(ii) (China, 39.71%) Compania Cervecera De Canarias, S.A. (Spain, 20%)
Chengdu Rongshangfang Marketing Co. Limited (China, 39.71%) Copper Dog Whisky Limited (England, 30%)
Chengdu Ruijin Trade Co. Limited (China, 39.71%) Del Professore Limited (England, 20%)
Chengdu Shuijingfang Jiuye Co. Limited (China, 39.71%) Hanoi Liquor Joint Stock Company (Vietnam, 45.57%)
Chengdu Shuijingfang Marketing Co. Limited (China, 39.71%) International Brands Developers N.V. (Curacao, 25%)
Chengdu Tengyuan Jiuye Marketing Co. Limited (China, 39.71%) Moët Hennessy International SAS (France, 34%)
D/CE Holdings LLC (United States, 50%) Moët Hennessy SNC (France, 34%)
DC Brands B.V.(iii) (Netherlands, 50%) Mr Black Spirits Party Ltd. (Australia, 10.03%)
Diageo Lebanon SAL (Lebanon, 84.99%) New World Whisky Distillery PTY Limited (Australia, 30%)
EABL (Tanzania) Limited(ii) (Tanzania, 50.03%) Seedlip Ltd (England, 20%)
EABL International Limited (Kenya, 50.03%) Stauning Whisky Holding ApS (Denmark, 40%)
East African Beverages (Southern Sudan) Limited (Republic of The Rouge Group Limited (Hong Kong, 20%)
South Sudan, 49.53%) The Scotch Whisky Heritage Centre Limited(vi) (Scotland, 22.38%)
East African Breweries Limited (Kenya, 50.03%) The Westbourne Drinks Company Limited (England, 20%)
East African Maltings (Uganda) Limited (Uganda, 50.03%) Valdomiño Premium Spirits, S.L. (Spain, 20%)
Governance
East African Maltings Limited (Kenya, 50.03%) Zwack Unicum plc (Hungary, 26%)
Four Seasons Wines Limited(xi) (India, 54.78%)
Gilbeys East Africa Limited(ii) (Kenya, 76.85%)
Guinness Canada Limited (Canada, 51%)
Joint ventures
Lothian Distillers Limited (Scotland, 50%)
Guinness Ghana Breweries Limited (Ghana, 80.39%)
North British Distillery Company Limited (Scotland, 50%)
Guinness Nigeria plc (Nigeria, 54.32%)
Harp Distributors Limited(ii) (Kenya, 76.85%)
Industrias Pampero C.A.(ii) (Venezuela, 96.8%) Joint operations(x)
International Distillers Kenya Limited(ii) (Kenya, 76.85%) Brandhouse Beverages (Pty) Limited (South Africa, 72.26%)
International Distillers Uganda Limited (Uganda, 50.03%) Diageo Kirin Company Limited (Japan, 51%)
Kenya Breweries Limited (Kenya, 50.03%) Diageo Moët Hennessy (Thailand) Limited(xiii) (Thailand, 63.02%)
Kenya Distillers Limited(ii) (Kenya, 76.85%) Diageo Moët Hennessy B.V.(iv) (Netherlands, 67%)
Kenya Liquor Distributors Limited(ii) (Kenya, 76.85%) Gist Dominicana S.A.(ii) (Dominican Republic, 60.25%)
Ketel One Worldwide B.V.(iv) (Netherlands, 50%) HA&COM Bebidas del Mundo, SA (Costa Rica, 50%)
Lakeside MWS Limited Liability Partnership (England) Holcom Industrial, SA (Costa Rica, 47.35%)
Liquidity Inc. LLC(xi) (United States, 27.94%) Industria de Licores Internationales S.A.(ii) (Dominican Republic, 59.71%)
Lochside MWS Limited Partnership (Scotland) MHD Moët Hennessy Diageo K.K.(xii) (Japan, 67%)
Masterplan (Kenya) Limited(ii) (Kenya, 50.03%) MHD Moët Hennessy Diageo SAS (France, 0.05%)
McDowell & Co. (Scotland) Ltd(xi) (England, 54.78%) Moët Hennessy Diageo (China) Co Ltd(xii) (China, 67%)
Montrose International SA(xi) (Panama, 54.78%) Moët Hennessy Diageo Hong Kong Limited(xii) (Hong Kong, 67%)
Palmer Investment Group Limited(xi) (British Virgin Islands, 54.78%) Moët Hennessy Diageo Macau Limited(xii) (Macau, 67%)
Pioneer Distilleries Limited(xi) (India, 41.01%) Moët Hennessy Diageo Malaysia Sdn Bhd.(xii) (Malaysia, 67%)
Royal Challengers Sports Private Limited(xi) (India, 54.78%) Moët Hennessy Diageo Singapore Pte. Ltd(xii) (Singapore, 67%)
RUM CREATION & PRODUCTS, INC.(v) (British Virgin Islands, 50%) Seagram Dominicana S.A.(ii) (Dominican Republic, 60.83%)
Salopia Limited(ii) (Kenya, 50.03%) Seagram European Customer Services Limited(ii) (England, 60.9%)
Serengeti Breweries Limited (Tanzania, 32.52%) Trafalgar Metropolitan Homes Limited (England, 50%)
Seychelles Breweries Limited (Seychelles, 54.4%)
Shaw Wallace Overseas Limited(xi) (England, 54.78%) (i) Directly owned by Diageo plc.
Sichuan Shuijingfang Company Ltd (China, 39.71%) (ii) Dormant company.
Sichuan Shuijingfang Jiuye Co. Limited(ii) (China, 39.71%) (iii) Ownership held in class of A shares.
Sierra Leone Brewery Limited(ii) (Sierra Leone, 11.59%) (iv) Ownership held in class of B shares.
Sovereign Distilleries Limited(xi) (India, 54.78%) (v) Ownership held in class of A shares and B shares.
Tembo Properties Limited(ii) (Kenya, 50.03%) (vi) Ownership held in preference shares.
Tern Distilleries Private Limited(xi) (India, 54.78%) (vii) Ownership held in equity shares and preference shares.
Türk Alkollü İçki ve Şarap Endüstrisi Ltd.Şti. (North Cyprus, 66%) (viii) 99.11% owned by Diageo plc.
Tusker Football Club (Kenya, 50.03%) (ix) Companies controlled by the group based on management’s assessment.
UB Sports Management Overseas LTD(xi) (Jersey, 54.78%) (x) Diageo shares joint control over these entities under shareholders’
UDV Kenya Limited (Kenya, 76.85%) agreements, and Diageo’s rights to the profit, assets and liabilities of the
Uganda Breweries Limited (Uganda, 49.03%) companies are dependent on the performance of the group’s brands rather
ULM Holdings Inc.(ii) (Philippines, 40%) the effective equity ownership of the companies.
United Spirits (Great Britain) Limited(xi) (England, 54.78%) (xi) Based on 54.78% equity investment in USL that excludes 2.38% owned by the Additional information for shareholders
United Spirits (Shanghai) Trading Company Ltd(xi) (China, 54.78%) USL Benefit Trust.
United Spirits (UK) Limited(xi) (England, 54.78%) (xii) Operation is managed by Moët Hennessy.
United Spirits Limited(xi) (India, 54.78%) (xiii) Operation is managed by Diageo.
United Spirits Nepal Pvt. Limited(xi) (Nepal, 45.17%)
United Spirit Singapore Pte. Ltd.(xi) (Singapore, 54.78%)
USL Holdings (UK) Limited(xi) (England, 54.78%)
USL Holdings Limited(xi) (British Virgin Islands, 54.78%)
Vietnam Spirits and Wine LTD (Vietnam, 55%)
152 DIAGEO Annual Report 2016 Unaudited financial information
UNAUDITED FINANCIAL INFORMATION

1. Five years financial information
The following tables present selected consolidated financial data for Diageo for the five years ended 30 June 2016 and as at the respective year
ends. The data presented below has been derived from Diageo’s audited consolidated financial statements.
Year ended 30 June
2016 2015 2014 2013 2012
Income statement data £ million £ million £ million £ million £ million
Sales 15,641 15,966 13,980 15,276 14,392
Excise duties (5,156) (5,153) (3,722) (3,973) (3,753)
Net sales 10,485 10,813 10,258 11,303 10,639
Cost of sales (4,251) (4,610) (4,029) (4,416) (4,208)
Gross profit 6,234 6,203 6,229 6,887 6,431
Marketing (1,562) (1,629) (1,620) (1,769) (1,671)
Other operating expenses (1,831) (1,777) (1,902) (1,738) (1,652)
Operating profit 2,841 2,797 2,707 3,380 3,108
Non-operating items 123 373 140 (83) 147
Net interest and other finance charges (327) (412) (388) (457) (441)
Share of after tax results of associates and joint ventures 221 175 252 217 229
Profit before taxation 2,858 2,933 2,711 3,057 3,043
Tax before exceptional items (552) (517) (546) (562) (506)
Exceptional taxation 56 51 99 55 (505)
Profit from continuing operations 2,362 2,467 2,264 2,550 2,032
Discontinued operations – – (83) – (11)
Profit for the year 2,362 2,467 2,181 2,550 2,021
Weighted average number of shares million million million million million

Shares in issue excluding own shares 2,508 2,505 2,506 2,502 2,495
Dilutive potential ordinary shares 10 12 11 15 14
2,518 2,517 2,517 2,517 2,509
Per share data pence pence pence pence pence

Dividend per share 59.2 56.4 51.7 47.4 43.5
Earnings per share
Basic
Continuing operations – before exceptional items 89.4 88.8 95.5 103.1 92.6
Continuing operations – after exceptional items 89.5 95.0 93.0 98.0 76.6
Discontinued operations – – (3.3) – (0.4)
Basic earnings per share 89.5 95.0 89.7 98.0 76.2
Diluted
Continuing operations 89.1 94.6 92.6 97.4 76.2
Discontinued operations – – (3.3) – (0.4)
Diluted earnings per share 89.1 94.6 89.3 97.4 75.8
As at 30 June
2016 2015 2014 2013 2012
Balance sheet data £ million £ million £ million £ million £ million
Non-current assets 19,639 18,134 15,495 16,481 15,098
Current assets 8,852 7,670 7,469 8,510 7,171
Total assets 28,491 25,804 22,964 24,991 22,269
Current liabilities (6,187) (5,290) (4,851) (5,519) (4,762)
Non-current liabilities (12,124) (11,258) (10,523) (11,384) (10,715)
Total liabilities (18,311) (16,548) (15,374) (16,903) (15,477)
Net assets 10,180 9,256 7,590 8,088 6,792
Share capital 797 797 797 797 797
Share premium 1,347 1,346 1,345 1,344 1,344
Other reserves 2,625 1,994 2,243 3,154 3,213
Retained earnings 3,761 3,634 2,438 1,741 234
Equity attributable to equity shareholders of the parent company 8,530 7,771 6,823 7,036 5,588
Non-controlling interests 1,650 1,485 767 1,052 1,204
Total equity 10,180 9,256 7,590 8,088 6,792
Net borrowings (8,635) (9,527) (8,850) (8,403) (7,573)
Unaudited financial information DIAGEO Annual Report 2016 153
2. Contractual obligations and other commitments
Strategic report
Payments due by period
Less than More than
1 year 1-3 years 3-5 years 5 years Total
As at 30 June 2016
Long term debt obligations 1,639 2,854 558 4,620 9,671
Interest obligations 358 449 360 1,415 2,582
Purchase obligations 831 800 183 45 1,859
Operating leases 92 175 133 407 807
Post employment benefits(i) 47 95 95 215 452
Provisions and other non-current payables 149 116 49 132 446
Finance leases 42 78 82 140 342
Credit support obligations 139 – – – 139
Capital commitments 81 6 – – 87
Other financial liabilities 13 18 159 – 190
Governance
3,391 4,591 1,619 6,974 16,575
(i) For further information see note 13(d) to the consolidated financial statements.
Long term debt obligations comprise the principal amount of borrowings (excluding foreign currency swaps) with an original maturity of
greater than one year. Interest obligations comprise interest payable on these borrowings. Credit support obligations represent liabilities to
counterparty banks in respect of cash received as collateral under credit support agreements. Purchase obligations include various long term
purchase contracts entered into for the supply of raw materials, principally bulk whisk(e)y, cereals, cans and glass bottles. Contracts are used
to guarantee the supply of raw materials over the long term and to enable a more accurate prediction of costs of raw materials in the future.
Provisions and other non-current payables exclude £2 million in respect of vacant properties.
Corporate tax payable of £340 million and deferred tax liabilities are not included in the table above, as the ultimate timing of settlement
cannot be reasonably estimated.
Management believe that it has sufficient funding for its working capital requirements.
Post employment contractual obligations comprise committed deficit contributions but exclude future service cost contributions.
3. Off-balance sheet arrangements
Neither Diageo plc nor any member of the Diageo group has any off-balance sheet financing arrangements that currently have or are
reasonably likely to have a material future effect on the group’s financial condition, changes in financial condition, results of operations,
liquidity, capital expenditure or capital resources.

154 DIAGEO Annual Report 2016 Additional information for shareholders
ADDITIONAL INFORMATION nine years or more at the date of the meeting. There is no age limit
requirement in respect of directors. Directors may also be removed
FOR SHAREHOLDERS before the expiration of their term of office in accordance with the
provisions of the Companies Acts.
Related party transactions
Transactions with other related parties are disclosed in note 20 to the Voting rights
consolidated financial statements. 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
Share capital hands, (a) every shareholder who is present in person at a general
Major shareholders meeting, and every proxy appointed by any one shareholder and
At 14 July 2016, the following substantial interests (3% or more) in the present at a general meeting, has/have one vote regardless of the
company’s ordinary share capital (voting securities) had been notified number of shares held by the shareholder (or, subject to (b),
to the company. represented by the proxy), and (b) every proxy present at a general
meeting who has been appointed by more than one shareholder
Percentage has one vote regardless of the number of shareholders who have
of issued
ordinary share appointed him or the number of shares held by those shareholders,
capital
Number of (excluding Date of unless he has been instructed to vote for a resolution by one or more
ordinary treasury notification shareholders and to vote against the resolution by one or more
Shareholder shares shares) of interest
shareholders, in which case he has one vote for and one vote against
BlackRock Investment the resolution.
Management (UK) Limited 3 December
On a poll, every shareholder who is present in person or by proxy
(indirect holding) 147,296,928 5.89% 2009
has one vote for every share held by that shareholder, but a
Capital Research and
Management Company shareholder or proxy entitled to more than one vote need not cast all
(indirect holding) 124,653,096 4.99% 28 April 2009 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).
The company has not been notified of any other substantial interests A poll may be demanded by any of the following:
in its securities. The company’s substantial shareholders do not have • the chairman of the general meeting;
different voting rights. Diageo, so far as is known by the company, is
• at least three shareholders entitled to vote on the relevant
not directly or indirectly owned or controlled by another corporation
resolution and present in person or by proxy at the meeting;
or by any government. Diageo knows of no arrangements, the
operation of which may at a subsequent date result in a change of • any shareholder or shareholders present in person or by proxy
control of the company. and representing in the aggregate not less than one-tenth of the
total voting rights of all shareholders entitled to vote on the
Articles of association relevant resolution; or
The company is incorporated under the name Diageo plc, and is • any shareholder or shareholders present in person or by proxy
registered in England and Wales under registered number 23307. and holding shares conferring a right to vote on the relevant
The following description summarises certain provisions of resolution on which there have been paid up sums in the
Diageo’s articles of association (as adopted by special resolution at aggregate equal to not less than one-tenth of the total sum paid
the Annual General Meeting on 14 October 2009) and applicable up on all the shares conferring that right.
English law concerning companies (the Companies Acts), in each
case as at 14 July 2016. This summary is qualified in its entirety by Diageo’s articles of association and the Companies Acts provide for
reference to the Companies Acts and Diageo’s articles of association. matters to be transacted at general meetings of Diageo by the
Investors can obtain copies of Diageo’s articles of association by proposing and passing of two kinds of resolutions:
contacting the Company Secretary at the.cosec@diageo.com. • ordinary resolutions, which include resolutions for the election,
Any amendment to the articles of association of the company re-election and removal of directors, the declaration of final
may be made in accordance with the provisions of the Companies dividends, the appointment and re-appointment of the external
Act 2006, by way of special resolution. auditor, the remuneration report and remuneration policy, the
increase of authorised share capital and the grant of authority to
Directors allot shares; and
Diageo’s articles of association provide for a Board of Directors, • special resolutions, which include resolutions for the amendment
consisting (unless otherwise determined by an ordinary resolution of Diageo’s articles of association, resolutions relating to the
of shareholders) of not fewer than three directors and not more than disapplication of pre-emption rights, and resolutions modifying
25 directors, in which all powers to manage the business and affairs the rights of any class of Diageo’s shares at a meeting of the
of Diageo are vested. Directors may be elected by the members in holders of such class.
a general meeting or appointed by Diageo’s Board. At each annual
general meeting, the following are required to retire and are then An ordinary resolution requires the affirmative vote of a simple
reconsidered for election/re-election, assuming they wish to stand majority of the votes cast by those entitled to vote at a meeting at
for election/re-election: any director who has been appointed by which there is a quorum in order to be passed. Special resolutions
Diageo’s Board since the last annual general meeting; any director require the affirmative vote of not less than three-quarters of the
who has been in office during the two previous general meetings votes cast by those entitled to vote at a meeting at which there is a
and did not retire at either of them; and any director who has been in quorum in order to be passed. The necessary quorum for a meeting
office, other than in an executive position, for a continuous period of of Diageo is a minimum of two shareholders present in person or by
proxy and entitled to vote.
Additional information for shareholders DIAGEO Annual Report 2016 155
A shareholder is not entitled to vote at any general meeting or class Documents on display
Strategic report
meeting in respect of any share held by him if he has been served The Annual Report on Form 20-F and any other documents filed
with a restriction notice (as defined in Diageo’s articles of association) by the company with the SEC may be inspected at the SEC’s at the
after failure to provide Diageo with information concerning interests reference facilities located at the SEC Headquarters at 100 F Street,
in those shares required to be provided under the Companies Acts. NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference facilities
Pre-emption rights and new issues of shares and their copy charges. Filings with the SEC are also available to the
While holders of ordinary shares have no pre-emptive rights under public from commercial document retrieval services, and from the
Diageo’s articles of association, the ability of the directors to cause website maintained by the SEC at www.sec.gov.
Diageo to issue shares, securities convertible into shares or rights to
shares, otherwise than pursuant to an employee share scheme, is Warning to shareholders – share fraud
restricted. Under the Companies Acts, the directors of a company are, Please beware of the share fraud of ‘boiler room’ scams, where
with certain exceptions, unable to allot any equity securities without shareholders are called ‘out of the blue’ by fraudsters (sometimes
express authorisation, which may be contained in a company’s claiming to represent Diageo) attempting to obtain money or
articles of association or given by its shareholders in a general property dishonestly. Further information is available in the investor
meeting, but which in either event cannot last for more than five section of the company’s website (www.diageo.com) but in short,
years. Under the Companies Acts, Diageo may also not allot shares if in doubt, take proper professional advice before making any
Governance
for cash (otherwise than pursuant to an employee share scheme) investment decision.
without first making an offer to existing shareholders to allot such
shares to them on the same or more favourable terms in proportion External limited assurance of selected Sustainability &
to their respective shareholdings, unless this requirement is waived Responsibility performance data
by a special resolution of the shareholders. We engaged PwC LLP to perform an independent limited assurance
engagement, reporting to the Board of Directors of Diageo plc, over
Repurchase of shares selected Sustainability & Responsibility (S&R) performance data
Subject to authorisation by special resolution, Diageo may purchase marked with the symbol Δ within the Strategic Report of the Annual
its own shares in accordance with the Companies Acts. Any shares Report 2016, and the S&R Performance Addendum to the Annual
which have been bought back may be held as treasury shares or, Report 2016. PwC LLP engagement was performed in accordance
if not so held, must be cancelled immediately upon completion with International Standard on Assurance Engagements 3000
of the purchase, thereby reducing the amount of Diageo’s issued (Revised) ‘Assurance Engagements other than Audits and Reviews of
share capital. Historical Financial Information’ and, in respect of the greenhouse
gas emissions in accordance with International Standard on
Restrictions on transfers of shares Assurance Engagements 3410 ‘Assurance engagements on
The Board may decline to register a transfer of a certificated Diageo greenhouse gas statements’, issued by the International Auditing
share unless the instrument of transfer (a) is duly stamped or certified and Assurance Standards Board.
or otherwise shown to the satisfaction of the Board to be exempt PwC LLP’s full assurance opinion is available in the S&R
from stamp duty, and is accompanied by the relevant share Performance Addendum to the Annual Report 2016, available at
certificate and such other evidence of the right to transfer as the www.diageo.com.
Board may reasonably require, (b) is in respect of only one class of A summary of the work they performed is included in their
share and (c) if to joint transferees, is in favour of not more than four assurance opinion. It is important to read the selected S&R
such transferees. performance data contained within this report in the context of PwC
Registration of a transfer of an uncertificated share may be refused LLP’s full limited assurance opinion and our reporting methodologies.
in the circumstances set out in the uncertificated securities rules (as Our reporting methodologies are included in the S&R Performance
defined in Diageo’s articles of association) and where, in the case of Addendum to the Annual Report, available at www.diageo.com.
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 Additional information for shareholders
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).
156 DIAGEO Annual Report 2016 Additional information for shareholders
CAUTIONARY STATEMENT • ability to maintain Diageo’s brand image and corporate reputation or
to adapt to a changing media environment, and exposure to adverse
CONCERNING FORWARD- publicity, whether or not justified, and any resulting impacts on
Diageo’s reputation and the likelihood that consumers choose
LOOKING STATEMENTS products offered by Diageo’s competitors;
• increased competitive product and pricing pressures, including as a
This document contains ‘forward-looking’ statements. These statements result of actions by increasingly consolidated competitors, that could
can be identified by the fact that they do not relate only to historical or negatively impact Diageo’s market share, distribution network, costs
current facts. In particular, forward-looking statements include all or pricing;
statements that express forecasts, expectations, plans, outlook, • the effects of Diageo’s business strategies, including in relation
objectives and projections with respect to future matters, including to expansion in emerging markets and growth of participation
trends in results of operations, margins, growth rates, overall market in international premium spirits markets, the effects of business
trends, the impact of changes in interest or exchange rates, the combinations, partnerships, acquisitions or disposals, existing
availability or cost of financing to Diageo, anticipated cost savings or or future, and the ability to realise expected synergies and/or
synergies, expected investments, the completion of Diageo’s strategic costs savings;
transactions and restructuring programmes, anticipated tax rates,
• Diageo’s ability to benefit from its strategy, including its ability to
expected cash payments, outcomes of litigation, anticipated deficit
expand into new markets, to complete and benefit from existing or
reductions in relation to pension schemes and general economic
future business combinations or other transactions, to implement
conditions. By their nature, forward-looking statements involve risk and
cost saving and productivity initiatives or to forecast inventory
uncertainty because they relate to events and depend on circumstances
levels successfully;
that will occur in the future. There are a number of factors that could
cause actual results and developments to differ materially from those • contamination, counterfeiting or other events that could adversely
expressed or implied by these forward-looking statements, including affect the perception of Diageo’s brands;
factors that are outside Diageo’s control. • increased costs or shortages of talent;
• disruption to production facilities or business service centres or
These factors include, but are not limited to: information systems (including cyber-attack), existing or future;
• economic, political, social or other developments in countries and
markets in which Diageo operates, which may contribute to reduced • fluctuations in exchange rates and interest rates, which may impact
demand for Diageo’s products, reduced consumer spending, negative the value of transactions and assets denominated in other
impacts on Diageo’s customer, supplier and financial counterparties currencies, increase the cost of financing or otherwise affect
or the imposition of import, investment or currency restrictions; Diageo’s financial results;
• the results of the decision in the United Kingdom’s referendum • movements in the value of the assets and liabilities related to Diageo’s
on 23 June 2016 to leave the European Union, which may lead to pension funds;
a sustained period of economic and political uncertainty and • renewal of supply, distribution, manufacturing or licence agreements
complexity until the detailed terms of the United Kingdom’s exit (or related rights) and licences on favourable terms or at all when they
from the European Union are finalised and as the United Kingdom expire; and
negotiates and concludes any successor trading arrangements with • failure of Diageo to protect its intellectual property rights.
other countries, and which may also negatively impact economic
conditions in Europe more generally which could have an adverse All oral and written forward-looking statements made on or after
impact on Diageo’s business operations and financial performance; the date of this document and attributable to Diageo are expressly
• changes in consumer preferences and tastes, including as a result of qualified in their entirety by the above factors and by the principal risks
changes in demographic and social trends, public health regulations set out in the ‘Strategic Report – How we protect our business: Risk
and travel, vacation or leisure activity patterns, or as a result of management and principal risks’. Any forward-looking statements made
contamination, counterfeiting or other circumstances which could by or on behalf of Diageo speak only as of the date they are made.
harm the integrity or sales of Diageo’s brands; Diageo does not undertake to update forward-looking statements to
reflect any changes in Diageo’s expectations with regard thereto or any
• any litigation or other similar proceedings (including with tax, changes in events, conditions or circumstances on which any such
customs and other regulatory authorities), including that directed at statement is based. The reader should, however, consult any additional
the drinks and spirits industry generally or at Diageo in particular, or disclosures that Diageo may make in any documents which it publishes
the impact of a product recall or product liability claim on Diageo’s and/or files with the US Securities and Exchange Commission (SEC).
profitability or reputation; All readers, wherever located, should take note of these disclosures.
• the effects of climate change and related regulations and other This document includes names of Diageo’s products, which
measures to address climate change, including any resulting impact constitute trademarks or trade names which Diageo owns, or which
on the cost and supply of water; others own and license to Diageo for use. All rights reserved.
• changes in the cost of production, including as a result of increases in © Diageo plc 2016.
the cost of commodities, labour and/or energy or as a result of inflation; The information in this document does not constitute an offer
to sell or an invitation to buy shares in Diageo plc or an invitation or
• legal and regulatory developments, including changes in regulations
inducement to engage in any other investment activities.
regarding production, product liability, distribution, importation,
This document may include information about Diageo’s target debt
labelling, packaging, consumption, advertising and data privacy;
rating. A security rating is not a recommendation to buy, sell or hold
changes in tax law (including tax treaties), rates or requirements
securities and may be subject to revision or withdrawal at any time by
(including with respect to the impact of excise tax increases) or
the assigning rating organisation. Each rating should be evaluated
accounting standards; and changes in environmental laws, health
independently of any other rating.
regulations and the laws governing labour and pensions;
Past performance cannot be relied upon as a guide to
• the consequences of any failure by Diageo to comply with anti- future performance.
corruption and other laws and regulations or any failure of Diageo’s
related internal policies and procedures to comply with applicable law;
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Diageo plc © 2016 Diageo plc.
All rights reserved.
Lakeside Drive All brands mentioned
Park Royal in this Annual Report
are trademarks and are
London registered and/or otherwise
NW10 7HQ protected in accordance
United Kingdom with applicable law.
T: +44 (0) 20 8978 6000

www.diageo.com
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Annual Report 2016

2016 EU246.4m 2016 £10,485m 2016 £2,841m

Equivalent units (EU)

2016 £2,548m 2016 89.5p 2016 59.2p

Alcohol in society Health and safety Water efficiency(V)

2016 335 2016

Reach and impact of responsible drinking Lost-time accident frequency(iv)

NORTH EUROPE, RUSSIA AFRICA LATIN AMERICA ASIA

Cover image Johnnie Walker Black Label on the

OUR BUSINESS Diageo has built a strong platform for

We produce We innovate We market We sell

Our role in society

OUR Diageo is the leading spirits player in every

Diageo reports as five regions

North America Europe, Russia Africa Latin America Asia Pacific

OUR BRANDS Our portfolio spans consumer drinking

and Smirnoff, and 20 of the world’s top

Local stars Reserve

BREADTH AND DEPTH We hold strong positions across all key

capture shifts in consumer preference.

Ultra premium Super premium Premium Standard Value

Additional information for shareholders

OUR STRATEGY We aim to grow our participation in

strategy to deliver our in emerging markets. To support this, we

Prioritised investment in: Targeted investment in:

Premium core spirits(i) Reserve Mainstream spirits(i) Beer

Outcomes of our strategy

Efficient growth Credibility and trust

See our key performance indicators (KPIs) pages: 8–9.

OUR BUSINESS MODEL We have structured our organisation into a

Leading capabilities Global functions

HOW WE MEASURE PERFORMANCE:

Financial 1 Financial 1 Financial 1

Non-Financial Non-Financial Non-Financial 1

Alcohol in society (reach and impact

of responsible drinking programmes) frequency per 1,000 employees) (l/l)

We use the following 11 key They measure progress Relevance to strategy

More detail: see page 24 More detail: see page 24

Recommended final dividend per share

Total dividend per share(i)

Total shareholder return (%)

(i) Includes recommended final dividend.

CHIEF EXECUTIVE’S STATEMENT

Volume Organic volume

Net sales Organic net

Operating profit Organic operating

MARKET The global beverage alcohol market is large and

Industry collaboration Sites

HOW WE WILL Diageo’s performance drivers and sustainability

Our six performance drivers

Our three sustainability and responsibility priorities

Here we share a selection of case studies how our approach to sustainability

US Spirits Europe – Ireland

SMIRNOFF – REDISCOVERING This brings together our brand’s long-

East Africa West Latin America and Caribbean (West LAC)

EMBRACING PRODUCTIVITY imported one. And in May 2016, we

HOW WE PROTECT Our Performance Ambition calls on us to be

Risk Impact How we mitigate Developments in 2016

2. Economic and • Social unrest, liquidity •O

See our key performance indicators (KPIs) pages: 8–9.

More detail: see page 24 More detail: see page 24

2. Economic and • Social unrest, liquidity •O

5. Non-compliance • Severe damage to our •C

7. International tax • Increase in the cost of •O

US Spirits Canada Spirits(i) RTDs Value Super premium

Europe Turkey Spirits(i) RTDs Value Super premium

Nigeria South Africa Spirits(i) RTDs Value Super premium