DEO 20-F Report ended June 30, 2020

(i)	Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares, pursuant to the requirements of the Securities and Exchange Commission.

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–	Disclosures under the heading ‘Recent trends’ on page 9.

–	Disclosures included under the titles ‘Water withdrawal (%)’ and ‘Carbon emissions (%)’ and ‘Number of employees (%)’ in the section ‘Strategic report - Our global reach - Our regional profile provides exposure to the greatest consumer growth opportunities in our sector’ on page 15.

–	Disclosures under the headings ‘Culture’, ‘Our stakeholders’, ‘The global environment’, ‘Diageo in society’, and ‘Looking ahead’ in the Chairman’s statement on pages 16 to 18.

–	Disclosures under the heading ‘Our purpose and ambition’ on pages 19 to 20.

–	Disclosures under the heading ‘Communities’, ‘Raising the Bar’ and ‘Outlook’ in the Chief Executive’s statement on pages 22 and 23.

–	Disclosures under the heading ‘Creating a truly sustainable business for the very long term’ on pages 24 and 25.

–	Disclosures included under the heading ‘Ensuring a continuous dialogue’ on pages 30 to 31.

–	Disclosures included under the heading ‘The right insights to deliver consumer-led growth’ in the section ‘Strategic report - Our market dynamics’ on page 34.

–	Disclosures included under the headings ‘Delivering our Performance Ambition’, ‘Strategic outcomes’, ‘The delivery of our strategic priorities is enabled by our culture and values’, ‘4. Promote positive drinking’, ‘5. Champion inclusion and diversity’, and ‘6. Pioneer grain-to-glass sustainability’ in the section ‘Strategic report - Our strategic priorities’ on pages 35 to 52.

–	Disclosures on pages 55 and 57 in the section ‘Strategic report - Monitoring performance and progress’ of non-financial key performance indicators.

–	Disclosures in the section ‘Strategic report - Our social and environmental performance’ on pages 58 to 66.

–	Disclosures included under the titles ‘Sustainability and responsibility’ on pages 94, 98, 102, 106 and 110 in relation to each reporting segment in the Business review.

–	Disclosures under the heading ‘Relations with shareholders’, ‘Internal control and risk management’, ‘Political donations’, ‘Going concern’, and ‘Directors’ responsibilities in respect of the Annual Report and financial statements’ in the Corporate governance report on pages 149 to 153.

–	Disclosures under the headings ‘Disclosure of information to the auditor’ and ‘Corporate governance statement’ in the Corporate governance report on page 192.

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(i)	IWSR, 2019.

(ii)	IWSR, 2019 and Global data, 2019.

(iii)	Percentages do not add to 100. Reserve group includes some brands and variants in both global giants and local stars. For detail on percentage of total net sales by category, see page 116.

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(i)	The above map is intended to illustrate general geographic regions where Diageo has a presence and/or in which its products are sold. It is not intended to imply that Diageo has a presence in and/or that its products are sold in every country within a geographic region.

(ii)	Based on reported net sales for the year ended 30 June 2020. Does not include corporate net sales of £38 million (2019 - £53 million).

(i)	Excluding corporate net sales of £38 million (2019 - £53 million).

(ii)	Excluding exceptional operating charges of £1,357 million (2019 – £74 million) and net corporate operating costs of £147 million (2019 – £189 million).

(iii)	Excluding net corporate operating costs of £147 million (2019 – £210 million).

(iv)	Excludes corporate offices which account for 1.4% of combined impacts.

(v)	Employees have been allocated to the region in which they reside.

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(i)	Includes final recommended dividend of 42.47p.

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(i)	June 2020 survey of more than 11,000 people across nine countries in Africa, North America, Latin America, Asia and Europe conducted by YouGov for the International Alliance for Responsible Drinking (IARD).

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–	Our stakeholder groups on pages 30-31

–	How the views and interests of stakeholders were taken into account in decision-making on pages 145-146

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1.	Our purpose and ambition are at the heart of everything we do

2.	Our values and culture shape the way we work.

–	Passionate about consumers and customers

–	Be the best

–	Freedom to succeed

–	Proud of what we do

–	Valuing each other

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3.	Our strategic priorities provide the roadmap to achieving our ambition.

4.	Our priorities ensure our stakeholders’ interests are integral to how we manage our business

5.	We measure progress through a set of financial and non-financial indicators

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1.	Efficient growth - Consistently grow organic net sales, grow operating profit, deliver strong free cash flow

2.	Consistent value creation - Top-tier total shareholder returns, increase return on invested capital

3.	Credibility and trust - Trusted by stakeholders for doing business the right way, from grain to glass

4.	Engaged people - High-performing and engaged teams, continuous learning, inclusive culture

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–	Grow volume, price and mix

–	Execute the most effective route to consumer

–	Build brand equity

–	Innovate sustainably

–	Grow next generation brands

–	Enable a positive policy environment

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–	Simplifying the business, injecting speed into what we do

–	Focusing resources on delighting customers and consumers

–	Unleashing technology, including data and analytics, on our processes to drive efficiency and insights

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–	Invest to grow and develop our people

–	Acquire attractive new brands

–	Spend more on A&P, more effectively and efficiently

–	Build capabilities in technology, data and e-commerce

–	Support growth with the right capital investment

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–	Change the way the world drinks for the better

–	Lead the industry in reducing underage drinking, drink driving and heavy drinking

–	Empower our people and brands to advocate moderation

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–	We were the first alcohol company to put nutritional information and alcohol content onto our labels. Our Diageo Consumer Information Standards (DCIS) provide benchmarks for the mandatory minimum information to be included on labels and packaging on all our brands, wherever they are legally permitted.

–	We have long supported the World Health Organization’s goal of reducing harmful drinking by 10% across the world by 2025. We work with partners from within and beyond our industry on initiatives that advance that goal.

–	DRINKiQ.com, our dedicated responsible drinking website, is now available in 16 languages and 35 countries.

–	Foster the creation of an inclusive culture

–	Promote equality of experience for all employees

–	Champion inclusion and diversity beyond our business

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–	Engage and empower our people

–	Invest in our people's growth through learning and development

–	Invest in leadership development to include a focus on fostering an entrepreneurial culture

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–	Support thriving communities where we live, work, source and sell

–	Build sustainable, resilient supply chains

–	Champion water stewardship and a low-carbon world

–	Minimise waste and develop circular economy solutions

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(i)	For reward purposes this measure is further adjusted for the impact of exchange rates and other factors not controlled by management, to ensure focus on our underlying performance drivers.

(ii)	In accordance with Diageo’s environmental reporting methodologies, data for each of the four years in the period ended 30 June 2019 has been restated where relevant.

(iii)	In accordance with Diageo’s environmental reporting methodologies and WRI/WBCSD GHG Protocol, data for each of the four years in the period ended 30 June 2019 has been restated where relevant.

(iv)	Building on what we have learnt from our drink driving interventions and feedback from our stakeholders, we are evolving our approach to focus on education programmes that promote changes in attitudes as a way to tackle drink driving. As a result, F20 will be our final year for #JoinThePact, and we will no longer include it in our reporting.

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1.	No poverty                        10. Reduced inequalities

2.	Zero hunger                        11. Sustainable cities and communities

3.	Good health and well-being                12. Responsible consumption and production

4.	Quality education                        13. Climate action

5.	Gender equality                        14. Life below water

6.	Clean water and sanitation                    15. Life on land

7.	Affordable and clean energy                16. Peace, justice and strong institutions

8.	Decent work and economic growth                17. Partnerships for the goals

9.	Industry, innovation, and infrastructure

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–	HRIAs conducted in North America (United States/Canada), Middle East (first phase) and China and Australia; and action plans developed to address salient risks.

–	Human rights training focused on modern slavery rolled out to our procurement teams and other key roles.

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–	social distancing measures, including the closure of on-trade channels such as bars and restaurants and restrictions on banqueting, conferences and similar events, being introduced in most of Diageo's markets, leading to a negative impact on sales;

–	travel restrictions being imposed by many countries and concern over the pandemic resulting in significant declines in passenger numbers, particularly in airports, with a corresponding negative impact on Diageo's global Travel Retail business;

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regulatory restrictions, combined with the implementation of heightened safety protocols across all of Diageo’s office and production sites (including increased sanitation measures, safety equipment and restrictions on access), resulting in office closures and reductions in levels of activity at certain of Diageo's production facilities, including the temporary closure of United Spirits’ supply operations due to a nationwide lockdown in India and the temporary closure of two production sites in Nigeria; and

–	wider disruptions in supply chains and routes to market, or those of Diageo's suppliers and/or distributors or customers, which could result in further increases in Diageo's costs of production and distribution or an increase in transnational trade or other trading practices impacting profitability.

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economic, political, social or other developments in countries and markets in which Diageo operates (including as a result of the Covid-19 pandemic), which may contribute to a reduction in demand for Diageo’s products, adverse impacts on Diageo’s customer, supplier and/or financial counterparties, or the imposition of import, investment or currency restrictions (including the potential impact of any global, regional or local trade wars or any tariffs, duties or other restrictions or barriers imposed on the import or export of goods between territories, including but not limited to, imports into and exports from the United States and the European Union and/or the United Kingdom);

–	the impact of the Covid-19 pandemic, or other epidemics or pandemics, on Diageo’s business, financial condition, cash flows and results of operation;

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the negotiating process surrounding, as well as the final terms of, the United Kingdom’s future trading relationships with the European Union and other countries, which could lead to a sustained period of economic and political uncertainty and complexity whilst successor trading arrangements with other countries are negotiated, finalised and implemented, potentially adversely impacting economic conditions in the United Kingdom and Europe more generally as well as Diageo’s business operations and financial performance; ;

–	changes in consumer preferences and tastes, including as a result of changes in demographics, evolving social trends (including any shifts in consumer tastes towards small-batch craft alcohol, lower or no alcohol, or other alternative products), changes in travel, holiday or leisure activity patterns, weather conditions, health concerns, pandemics and/or a downturn in economic conditions;

–	changes in the domestic and international tax environment, including as a result of the OECD Base Erosion and Profit Shifting Initiative and EU anti-tax abuse measures, leading to uncertainty around the application of existing and new tax laws and unexpected tax exposures;

–	the effects of climate change, or legal, regulatory or market measures intended to address climate change, on Diageo’s business or operations, including on the cost and supply of water;

–	changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation;

–	any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corruption or other regulatory authorities), including litigation directed at the beverage alcohol industry generally or at Diageo in particular;

–	legal and regulatory developments, including changes in regulations relating to production, distribution, importation, marketing, advertising, sales, pricing, labelling, packaging, product liability, antitrust, labour, compliance and control systems, environmental issues and/or data privacy;

–	the consequences of any failure by Diageo or its associates to comply with anti-corruption, sanctions, trade restrictions or similar laws and regulations, or any failure of Diageo’s related internal policies and procedures to comply with applicable law or regulation;

–	the consequences of any failure of internal controls, including those affecting compliance with existing or new accounting and/or disclosure requirements;

–	Diageo’s ability to maintain its brand image and corporate reputation or to adapt to a changing media environment;

–	contamination, counterfeiting or other circumstances which could harm the level of customer support for Diageo’s brands and adversely impact its sales;

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–	increased competitive product and pricing pressures, including as a result of actions by increasingly consolidated competitors or increased competition from regional and local companies, that could negatively impact Diageo’s market share, distribution network, costs and/or pricing;

–	any disruption to production facilities, business service centres or information systems, including as a result of cyber attacks;

–	increased costs for, or shortages of, talent, as well as labour strikes or disputes;

–	Diageo’s ability to derive the expected benefits from its business strategies, including in relation to expansion in emerging markets, acquisitions and/or disposals, cost savings and productivity initiatives or inventory forecasting;

–	fluctuations in exchange rates and/or interest rates, which may impact the value of transactions and assets denominated in other currencies, increase Diageo’s cost of financing or otherwise adversely affect Diageo’s financial results;

–	movements in the value of the assets and liabilities related to Diageo’s pension plans;

–	Diageo’s ability to renew supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms, or at all, when they expire; or

–	any failure by Diageo to protect its intellectual property rights.

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(i)	Excluding corporate net sales of £38 million (2019 - £53 million).

(ii)	Excluding net corporate cost of £147 million (2019 - £210 million).

(iii)	Excluding exceptional operating charges of £1,357 million (2019 - £74 million) and net corporate operating costs of £147 million (2019 - £189 million).

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(i)	Before exceptional operating items.

(ii)	Includes Corporate. In the year ended 30 June 2020 corporate net sales were £38 million (2019 - £53 million). Net corporate operating costs were £147 million (2019 - £189 million).

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(i)	Exchange rate movements reflect the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.

(i)	For further details on exceptional items see pages 213-216.

(ii)	Fair value adjustments. For further details on fair value remeasurement see page 89.

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(i)	Fair value adjustments and reclassification.

(i)	Includes finance charges net of tax.

(ii)	Excludes finance charges related to acquisitions, disposals and share buyback.

(iii)	Excludes tax related to acquisitions, disposals and share buyback.

(iv)	Fair value adjustments and exchange on operating profit.

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( i)	Net cash from operating activities excludes net capex and movements in loans and other investments ( 2020 - £(686) million; 2019 - £(640) million ).

(ii)	Net cash from operating activities and free cash flow for the year ended 30 June 2020 benefited by £74 million as a result of the adoption of IFRS 16 on 1 July 2019.

(iii)	Exchange on operating profit before exceptional items.

(iv)	Operating profit excludes exchange, depreciation and amortisation, post employment charges and other non-cash items.

(v)	Working capital movement includes maturing inventory.

( vi)	Other items include post employment payments, dividends received from associates and joint ventures, and movements in loans and other investments.

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(i)	ROIC calculation excludes exceptional operating items from operating profit and includes an adverse impact of 18bps as a result of the adoption of IFRS 16 on 1 July 2019.

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(i)	Reported US Spirits volume, and net sales, growth include impacts from the disposal of a portfolio of 19 brands to Sazerac.

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Net sales in US Spirits were up 2%, with depletions ahead of shipments resulting in a reduction in distributor inventories. Don Julio and Casamigos delivered strong double-digit growth and gained share in the rapidly growing tequila category. While the brands were disproportionately impacted by the on-trade closures, an agile response drove strong demand in at-home occasions. Crown Royal grew net sales 8%, gaining further category share, driven by the continued growth of Crown Royal Regal Apple and Crown Royal Vanilla, and the success of the limited time offer, Crown Royal Peach. Johnnie Walker net sales declined 11% and the brand lost share in the scotch category. A decline in net sales in the first half, due to lapping the highly successful limited edition of "White Walker by Johnnie Walker", was exacerbated in the second half by the on-trade channel closure. Malts continued to perform well with growth from Oban and Lagavulin, as well as Talisker and Mortlach. Vodka net sales were down 7%. Lower sales of Ketel One reflect its strong presence in the on-trade channel and a decline in Ketel One Botanical, lapping last year's successful launch. Smirnoff net sales declined, although Smirnoff Zero Sugar Infusions and seasonal innovations, including the Smirnoff Red, White and Berry limited time offer performed well. Cîroc continued to decline. Bulleit net sales were up 4%. An effective marketing approach drove off-trade sales in the second half and continued share gain in US whiskey. Captain Morgan net sales declined 5% and the brand lost share in the rum category. Baileys net sales grew 1% driven by the launch of Baileys Red Velvet limited edition and growth in Baileys Salted Caramel.

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Diageo Beer Company USA net sales increased 8%, despite a reduction in distributors' inventories. This reflected ready to drink growth of 19%, with continued strong growth across the Smirnoff range. Strong sales in the second half were supported by a large-scale media campaign to promote Smirnoff's Red, White and Berry limited time offer variants, including Smirnoff Ice and a new Smirnoff Seltzer. Beer net sales declined 5% as a result of the closure of the on-trade and the Guinness Open Gate Brewery. However, beer gained share in the off-trade due to Guinness' success in raising brand awareness and connecting with consumers during the Covid-19 lockdown.

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Net sales in Canada grew 7%, with good growth across all categories except beer, which was more impacted by the on-trade channel closure. Shipments were slightly ahead of depletions, as customers held more stock to manage volatility in the second half. Vodka grew 6% with Smirnoff No.21 continuing to grow, supported by a new global campaign in the first half and the launch of the redesigned Smirnoff bottle in the second half. Cîroc and Ketel One both grew strongly. Crown Royal grew double-digit, gaining market share and strengthening its leadership position in the growing Canadian whisky category. Performance was supported by the launch of a new "generosity" campaign connecting the brand to its roots, and successful limited time offer innovations. Scotch grew 7%, with Johnnie Walker Black Label remaining the number-one selling scotch in Canada. Ready to drink net sales continued to deliver double-digit growth, with Smirnoff Ice retaining its position as the number-one selling ready to drink in Canada.

–	Marketing expenses declined 6%. This was due to reduced investment in the second half that we believed would have been ineffective during Covid-19, as well as productivity savings during the year. We believe that our marketing effectiveness tools will enable us to efficiently accelerate investment as consumer demand recovers.

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(i)	Spirits brands excluding ready to drink.

(ii)	Organic equals reported volume movement.

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–	In Europe , net sales were down 12%:

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In Great Britain , net sales declined 4%. Solid first half results were offset by the impact of on-trade closures from March despite an increase in off-trade sales. The impact was further amplified by the cancellation of significant sporting and cultural events. Continued growth in rum and liqueurs were offset by declines in beer, scotch, wine and vodka. Guinness was impacted by on-trade closures and the decision to support customers, and maintain product quality, through a keg return scheme. Focus on e-commerce was upweighted as partnerships were strengthened on activities to drive consumer engagement and sales.

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Ireland net sales declined 20%. A soft first half performance was further exacerbated by on-trade closures. Beer declined 22%. Rockshore continued to grow double-digit through Rockshore Cider and high single-digit in Rockshore Lager despite Covid-19 lockdown restrictions. This was offset by declines in Guinness, driven by closure of the on-trade and further impacted by a keg return scheme to support customers and maintain product quality. Total spirits declined 10%, as off-trade sales increases were not sufficient to offset Covid-19 related closures of the on-trade.

–	In Continental Europe , net sales declined 15%:

–	Iberia net sales were down 22%. Growth in the first half was offset by the impact of lockdowns affecting the on-trade channel and tourism in the second half, which accounts for a high proportion of sales in the market. On-trade investment was placed on hold as resources were deployed to the off-trade to support customers and activations in the off-trade.

–	In Central Europe, net sales declined 9%. Strong double-digit performance in the first half was impacted by on-trade lockdowns across the market in the second half. Captain Morgan performance was flat while Baileys, Smirnoff and Johnnie Walker declined.

–	In Northern Europe net sales declined 1%. Good first half performance was offset by the cancellation of key events and on-trade closures in the second half. Resilient performance due to rum growth, driven by Captain Morgan Original Spiced Rum, and gin driven by Gordon’s Premium Pink Distilled Gin and Tanqueray Flor de Sevilla innovations in the second half, was offset by declines in scotch

–	In the Mediterranean Hub , net sales declined 26%. Growth in the first half was offset by on-trade closures and significantly reduced tourism which severely impacted volume.

–	In Europe Partner Markets, net sales declined 19%. Rum and tequila growth were offset by declines in scotch and beer. Declines were mainly due to lockdowns affecting the on-trade, and while absolute inventory levels were reduced, they remain elevated relative to demand. Guinness also responded with a keg return scheme to support the channel and protect product quality.

–	Russia net sales were down 8%. Growth in gin was offset by declines in scotch and rum.

–	France net sales declined 5%. Good growth in rum was offset by a decline in scotch, driven by competitive challenges and category declines in standard scotch, and on-trade closures.

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In Turkey , net sales declined 6%. Double-digit growth in the first half was offset by on-trade closures from March. Scotch declined 3%, as Bell's growth was offset by Johnnie Walker and VAT 69. Raki declined 9%, with volume declines driven by ongoing impacts from excise increases in the first half and on-trade restrictions. Commercial and marketing teams were repurposed to focus on growth categories and less affected channels.

–	Marketing investment declined 12%, in line with net sales. On-trade marketing spend was reduced, with some redeployed to digital, while focus was placed on e-commerce partnerships to deliver key celebrations as well as online platforms.

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(i)	Spirits brands excluding ready to drink.

(ii)	Organic equals reported volume movement.

(iii)	Africa, Africa Regional Markets, South Africa and Ready to drink reported volume movement impacted by acquisitions and disposals.

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In East Africa , net sales declined 10%. Strong first half growth, and a continuation of resilient sales growth in Tanzania in the second half, was offset by volume declines in other markets. Tanzania grew 14% as it was minimally impacted by limited Covid-19 related lockdowns, and benefitted from the ongoing successes of Serengeti Lager and Serengeti Lite. Kenya declined 14%, driven by the high exposure to on-trade closures impacting Senator Keg and other beer sales, which was partially offset by vodka, driven by double-digit growth in Chrome and Triple Ace. Increased focus in the off-trade and e-commerce channels partially recovered lost on-trade sales.

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In Africa Regional Markets , net sales declined 8%. Resilient growth in Ghana during the year was offset by double-digit declines in Cameroon and Ethiopia. Due to the impact of Covid-19 in the second half, beer and spirits inventory levels were reduced. Ghana grew 5%, driven by continued success of the ABC Lager innovation and Malta Guinness growth, which addressed consumer shifts for portability and non-returnable formats throughout lockdown. Cameroon declined 15% due to one-off production challenges in the first half, with the second half impacted by Covid-19 driving declines in Guinness in the on-trade. Ethiopia declined 24%, as beer and international premium spirits growth was impacted by excise increases, supply issues and the impact of on-trade closures. Impacts of shutdowns were partially offset as markets reprioritised brand packs to capture off-trade consumer shifts.

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In Nigeria , net sales declined 20%. First half growth was offset by volume impacts from Covid-19 restrictions as it exacerbated an already challenging economic climate; while VAT and spirits excise increases also impacted consumer demand in a competitive environment. Robust performance of Orijin Bitters, successful spirits innovations, and increased at-home consumption, were offset by declines in beer. Malta Guinness and Guinness were impacted by on-trade closures. Increased focus on the off-trade and e-commerce channels, through the introduction of trade telesales and consumer platforms together with an online store, reduced some impacts of lockdown.

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South Africa net sales declined 25%. Economic and social challenges in the first half were further exacerbated by the banning of alcohol sales across all channels from 27 March to 31 May. While absolute inventory levels were reduced, they remain elevated relative to demand. Scotch and vodka were most affected with double-digit declines, as a result of the softening economic climate and consumer shifts into the mainstream gin category

–	Marketing investment declined 8%. We rapidly reacted to consumer shifts in the second half, through telesales, pack reprioritisation and the redeployment of investment to e-commerce and the off-trade.

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(ii)	The adjustment to cost of sales reflects the elimination of fair value changes for biological assets in respect of growing agave plants. The adjustment to other operating expenses is the elimination of fair value changes to contingent consideration liabilities in respect of prior year acquisitions.

(iii)	For further details on exceptional operating items see pages 213-216.

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(i)	Spirits brands excluding ready to drink.

(ii)	Organic equals reported volume movement.

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In PUB (Paraguay, Uruguay and Brazil), net sales declined 7%, mainly driven by scotch declining 11% across the market. Brazil declined 5% as a solid first half was fully offset by Covid-19 on-trade closures and domestic and foreign travel restrictions. Momentum in gin continued as Tanqueray and Gordon’s grew double digit supported by major marketing campaigns. In Brazil, scotch net sales declined 6% as double-digit growth of White Horse and Buchanan’s was offset by declines in Johnnie Walker and Black & White. Johnnie Walker decline was driven by a strong reliance on the on-trade and border stores as well as the weakening economy and devaluation impacting consumption. Super-premium scotch remained resilient through actions taken to address the at-home occasion via digital activations and supporting availability of cocktail offerings.

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In Mexico , net sales were down 19% as the economic slowdown continued into the second half and was amplified by Covid-19, including the reduction of on-trade wholesaler inventory and stock returns to support customers. Despite this, the successful Smirnoff X1 Spicy Tamarind innovation delivered strong growth building on local cues and strong activations. This was fully offset by the softening of the scotch category, challenging trading conditions in the first half, and declines in Don Julio due to competitive pricing pressure. Tequila production was secured amidst non-essential business closures along with an enhanced focus on e-commerce and off-trade partnerships.

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In CCA (Caribbean and Central America), net sales decreased 16% as broad-based growth in the first half was subsequently disrupted by restrictions to curtail the spread of Covid-19. The tequila category grew during the year driven by double-digit growth of Don Julio led by strong activations, however all other categories declined due to reduced tourism, on-trade closures and Covid-19 related bans of alcohol sales. At-home occasion promotions and the launch of e-commerce platforms with our partners partially offset net sales declines.

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Andean (Colombia and Venezuela) net sales increased 8% driven by Colombia. Scotch net sales grew mid-single digit driven by Buchanan’s, as double digit first half sales growth was followed by a resilient second half. Johnnie Walker was flat as on-trade closures muted strong first half performance of Johnnie Walker Red Label and Johnnie Walker Black Label. Brands such as Buchanan's, Baileys and Smirnoff X1 Lulo benefitted from an agile shift of activations to at-home consumption, streamlined route to consumer solutions and the refocusing of resources to e-commerce throughout the Covid-19 lockdown.

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PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) net sales declined 44% driven by continued social unrest across key markets compounded by the impact of Covid-19. Scotch declined significantly, however category share leadership was maintained across PEBAC benefiting from new and existing distribution partnerships. Strong double-digit growth of Smirnoff No.21 as it lapped a softer comparable period and the successful Smirnoff Bitter Citric innovation continued to drive vodka in Argentina.

–	Marketing investment was down 15%, in line with the decline in net sales. Despite cost mitigations in the second half, support was continued behind key brands and home occasions with #homehour #digitaldrink #onlinedrinkswithfriends and ‘Digital Golden Hour’ campaigns.

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(i)	For further details on exceptional operating items see pages 213-216.

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(i)	Spirits brands excluding ready to drink .

(ii)	Organic equals reported volume movement.

(iii)	Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.

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In India , net sales declined 17%. First half growth was impacted principally by an economic slowdown which was further exacerbated in the second half by the 42 day nationwide total lockdown of on-trade and off-trade alcohol sales, regulatory changes and continuation of on-trade closures thereafter. Prestige & Above declined 14%, driven by IMFL whisky and scotch. Popular brands declined 23%, driven by Old Tavern Whisky and McDowell's No. 1 Rum. These declines were partially offset by Innovation growth in McDowell’s No.1 Luxury and Captain Morgan. Trade investment was optimised and refocused in the off-trade.

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In Greater China , net sales declined 7%. Strong performance in scotch, liqueur and beer was offset by a decline in Chinese white spirits. Chinese white spirits declined 16%, as strong first half growth was offset by the impact of Covid-19 on the key Chinese New Year consumption period with consequential reduced sales and inventory reductions through the second half. Resilient scotch growth of 3%, was driven by malts and Johnnie Walker super deluxe growth in Mainland China along with continued growth in malts and Johnnie Walker super deluxe innovation in Taiwan. Beer grew 12% as it lapped a weaker prior year and supported by the launch of the first Guinness Gatehouse in Shanghai. Increased focus behind e-commerce drove improved digital consumer engagement and food delivery partnerships to address at-home consumption, softened the impact of lockdown driven volume losses.

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A ustralia net sales grew 6%. Strong first half growth was partially offset by a weaker but still solid second half performance despite Covid-19 lockdowns. This was mainly due to low exposure to the on-trade and a focus on accelerating e-commerce activities. Scotch grew 4%, driven by the new Johnnie Walker "Game of Thrones Limited Editions A Song of Fire and A Song of Ice” innovations. Rum grew 4%, driven by Captain Morgan and continued growth in Bundaberg. Gin grew double-digit and ready to drink grew 6%, as growth in the core brands was complimented by innovation in both categories such as Gordon's Premium Pink Distilled Gin and Tanqueray Flor de Sevilla.

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In South East Asia , net sales declined 23%. Solid growth in Vietnam, driven by Johnnie Walker super deluxe and malts, was offset by Covid-19 related lockdowns across the region. Thailand declined 24%, driven by on-trade closures. Key Accounts declined double-digit due to Covid-19 and a stock-return customer support programme in the second half. Indonesia declined double-digit mainly due to lockdowns impacting Guinness. Activities were upweighted to focus on at-home and small group consumer occasion trends.

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In North Asia , net sales declined 15%, with double-digit declines in Japan and Korea. In Japan, declines in the first half were further exacerbated by on-trade lockdowns. In Korea, scotch declined 23%, driven by continued category contraction, regulatory changes limiting trade spend for wholesalers and venues affecting the category, on-trade closures and a reduction of inventory levels. This was partially offset through strong beer growth, driven by Hop House 13 Lager as it lapped launch in the prior period. Increased investment behind the off-trade in South Korea, especially through digital campaigns, contributed to increased at-home consumption.

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In Travel Retail Asia and Middle East , net sales declined 46%. First half performance was impacted by challenging trading conditions in the Middle East including some reduction of inventory levels. In the second half the global travel channel was severely impacted by Covid-19 travel restrictions, with significant declines of passengers. While absolute inventory levels were reduced, it remains at a high level relative to ongoing reduced passenger travel.

–	Marketing investment declined 11%, as variable trade investment was repurposed and redeployed into the off-trade and e-commerce channel, which focused on home delivery and at-home consumption.

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(iii)	Organic equals reported volume movement except for vodka (10)%, Canadian whisky 6%, rum (12)%, liqueurs (5)% and ready to drink 1%, which were impacted by acquisitions and disposals.

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Scotch represents 23% of Diageo's net sales and declined by 17%. Soft performance in the first half was impacted by ongoing commercial challenges along with political and economic disruption which continued through the year. This was further exacerbated by Covid-19 in the second half. Johnnie Walker declined 22% where growth in Ethiopia, Canada and Australia was offset by most other markets. The brand also lapped strong innovation in the prior year. Buchanan’s declined 12% with double-digit growth in Colombia, primarily offset by continued declines in Mexico due to category softness. J Ɛ B declined 18% as global lockdowns exacerbated ongoing challenges for the brand in Continental Europe. Old Parr declined 15%, driven by downtrading to primary scotch and the impact of lockdown restrictions in Latin America and Caribbean. The malts portfolio, whilst in growth in the first half, declined over the full year. Scotch innovations such as the collaborations with HBO's Game of Thrones and Johnnie Walker Black Label 12 Year Old Origin Series were not enough to offset prior year.

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Vodka represents 11% of Diageo’s net sales and declined by 8%. Challenging performance in the first half was further exacerbated by some category declines and on-trade closures. Smirnoff declined 6% globally, where growth in Mexico and Canada were offset by declines in Continental Europe, Africa, Brazil and US Spirits. Ketel One declined 6% driven mainly by US Spirits where on-trade sales mix was relatively stronger and also lapping the first full year of the Ketel One Botanical innovation. Cîroc declined 17%, driven by continued performance challenges, mainly in US Spirits. Innovations across the vodka portfolio, such as Smirnoff X1 Spicy Tamarind in Mexico, and limited time offers such as Cîroc White Grape, partially offset the declines in other brands and variants.

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Canadian whisky represents 8% of Diageo’s net sales and grew 8%. Crown Royal in US Spirits grew 8% as it gained further category share despite a single digit decline in Crown Royal Deluxe. Positive results were driven by the sustained media investment enabling further momentum across the portfolio including continued double-digit growth of Crown Royal Regal Apple and Crown Royal Vanilla, and the success of the limited time offer variant Crown Royal Peach. In Canada, Crown Royal grew double-digit, gaining market share and strengthening its leadership position in the growing category.

–	Rum represents 7% of Diageo’s net sales and declined by 7%. Growth in the first half was offset by declines due to some category challenges and Covid-19 impacts in US Spirits, India and East Africa. In Europe, Captain Morgan growth was partially offset by declines of Zacapa.

–	Liqueurs represent 5% of Diageo’s net sales and declined by 4%. Strong Baileys growth in the first half was offset by the impact of Covid-19, as increased off-trade growth, due to successful at-home activities, was not sufficient to fully mitigate the impact of on-trade closures.

–	IMFL whisky represents 5% of Diageo’s net sales and declined 14%. Growth in first half was offset by the on-going economic slowdown impacting the category, and nationwide Covid-19 lockdowns closing both on and off-trade outlets and major sporting events.

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Tequila represents 5% of Diageo’s net sales and grew 25%. Casamigos was up strong double-digit despite on-trade closures driven by strong category momentum in key markets and actions taken to strengthen its position in at-home occasions. Don Julio was up 15%, as continued growth in US Spirits was partially offset by Mexico declines due to competitor pricing pressures and lockdowns in the second half.

–	Gin represents 5% of Diageo’s net sales and declined by 4%. Resilient full year performance in Brazil and Australia was offset by the impact of lockdowns, mainly in Europe.

–	US whiskey represents 3% of Diageo’s net sales and grew by 3%. Bulleit grew 4% in US Spirits, where it has been gaining category share, and in Canada grew 14%, despite lockdowns. Bulleit strengthened its positioning in the at-home occasion during Covid-19 with effective marketing campaigns across TV and social media.

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Beer represents 15% of Diageo’s net sales and declined by 15%. Good first half performance was offset by declines in all regions in the second half driven by on-trade closures and excise increases in Africa. Guinness declined 16%, as growth of Guinness Draught in Can was offset by on-trade volume declines in most markets. The on-trade decline was exacerbated by the Guinness keg return programme to support the on-trade and maintain product quality across Europe and North America. Serengeti continued to grow double-digit in East Africa but was offset by the decline in Senator Keg and Tusker which are highly exposed to the on-trade. Nigeria declined due to the challenging economic environment, and declines in Kenya and Ethiopia were due to excise increases, with all three markets further impacted by lockdowns. Rockshore continued to grow double-digit driven by Rockshore Cider and Rockshore Lager despite on-trade closures.

–	Ready to drink represents 7% of Diageo’s net sales and grew 8% driven by Diageo Beer Company USA, Canada, and Australia. Smirnoff Ice Flavour innovations in Diageo Beer Company USA, Smirnoff Ice Smash and Smirnoff Spiked Seltzers all contributed to growth.

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(iii)	Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.

(iv)	Ketel One includes Ketel One vodka and Ketel One Botanical.

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Global giants represent 39% of Diageo’s net sales and declined by 13%. This was driven by declines in Johnnie Walker and Guinness across all regions, while Smirnoff declined in all regions except for Latin America and Caribbean. Good first half performance for all brands except Johnnie Walker was offset by global lockdowns in the second half. Johnnie Walker performance was also impacted by a continuation of political, and economic challenges in some emerging markets, as well as lapping “White Walker by Johnnie Walker” innovation last year.

–	Local stars represent 20% of Diageo’s net sales and declined by 7%. Continued growth of Crown Royal in US Spirits was offset by declines, mainly in Chinese white spirits in China, McDowell’s in India, Buchanan's in Latin America and Caribbean and US Spirits and J Ɛ B in Iberia and South Africa due to imposed lockdowns. Windsor continued to decline in Korea exacerbated by on-trade closures.

–	Reserve brands represent 21% of Diageo’s net sales and declined 4%. Continued growth in Don Julio and Casamigos in US Spirits were offset by declines in Chinese white spirits, Johnnie Walker Reserve variants, Cîroc and Ketel One.

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(i)	For further information see note 13 to the consolidated financial statements.

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–	Exceptional items - page 213

–	Taxation - pages 219, 220 and 269

–	Brands, goodwill and other intangibles - page 228

–	Post employment benefits - page 239

–	Contingent liabilities and legal proceedings - page 269

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(v)	In the year ended 30 June 2020 the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows:

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(i)	For the year ended 30 June 2020 taxation includes £165 million tax credit on exceptional impairment, £11 million tax charge on other exceptional operating items, £ nil on non-operating items and £ nil exceptional tax charge ( 2019 - £ nil , £4 million tax credit, £33 million tax charge and £10 million exceptional tax charge, respectively).

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–	Debra Crew ceased to be a Non-Executive Director on 24 March 2020 and became President, Diageo North America from 1 July 2020.

–	Melissa Bethell was appointed as Non-Executive Director with effect from 30 June 2020.

–	Lord Davies of Abersoch retired from the Board on 30 June 2020.

–	Sir John Manzoni has been appointed as a Non-Executive Director with effect from 1 October 2020.

–	Valérie Chapoulaud-Floquet has been appointed as a Non-Executive Director with effect from 1 January 2021.

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(i)	Attended by invitation.

(ii)	Appointed to the Board on 30 June 2020.

(iii)	Where Non-Executive Directors were unable to attend a meeting, they gave their views to the Chairman of each respective meeting ahead of the meeting being held.

(iv)	Retired from the Board on 24 March 2020.

(v)	Retired from the Board on 30 June 2020.

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–	The strength of Diageo’s culture; our brand heritage; the importance of inclusion and diversity; our leadership and transparency; our focus on wellbeing; and the investment in learning and development.

–	Perspectives and ideas were also shared on the need to further simplify processes to enable even faster decision-making, greater knowledge sharing and collaboration with a recognition of the progress already made. Employees were keen to take advantage of best practice sharing of ideas across markets.

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–

Basis of regulation: UK listed companies are required to include in their annual report a narrative statement of (i) how they have applied the principles of the Code and (ii) whether or not they have complied with the best practice provisions of the Code. NYSE listed companies must adopt and disclose their corporate governance guidelines. Certain UK companies are required to include in their annual report statements as to (i) how directors have complied with s.172 of the UK Companies Act 2006, which requires directors to promote the success of the company for the benefit of the members as a whole, having regard to the interests of stakeholders, (ii) how directors have engaged with and taken account of the views of the company’s workforce and other stakeholder groups. Diageo complied throughout the year with the best practice provisions of the Code and the disclosure requirements noted above.

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Director independence: the Code requires at least half the Board (excluding the Chairman) to be independent Non-Executive Directors, as determined by affirmatively concluding that a Director is independent in character and judgement and determining whether there are relationship and circumstances which are likely to affect, or could appear to affect, the Director’s judgement. The Code requires the Board to state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination. NYSE rules require a majority of independent directors, according to the NYSE’s own ‘brightline’ tests and an affirmative determination by the Board that the Director has no material relationship with the listed company. Diageo’s Board has determined that, in its judgement and without taking into account the NYSE brightline tests, all of the Non-Executive Directors (excluding the Chairman) are independent. As such, currently five of Diageo’s eight directors are independent.

–	Chairman and Chief Executive: the Code requires these roles to be separate. There is no corresponding requirement for US companies. Diageo has a separate chairman and chief executive.

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Non-Executive Director meetings: NYSE rules require Non-Management Directors to meet regularly without management and independent directors to meet separately at least once a year. The Code requires Non-Executive Directors to meet without the Chairman present at least annually to appraise the Chairman’s performance. During the year, an internally facilitated evaluation of the Board’s effectiveness, including the effectiveness of the Chairman, was undertaken. During the year, Diageo’s Chairman and Non-Executive Directors met six times as a group without Executive Directors being present.

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Board committees: Diageo has a number of Board committees that are similar in purpose and constitution to those required by NYSE rules. Diageo’s Audit, Remuneration and Nomination Committees consist entirely of independent Non-Executive Directors (save that the Chairman of the Nomination Committee, Javier Ferrán, is not independent). Under NYSE standards, companies are required to have a nominating/corporate governance committee, which develops and recommends a set of corporate governance principles and is composed entirely of independent directors. The terms of reference for Diageo’s Nomination Committee, which comply with the Code, do not contain such a requirement. In accordance with the requirements of the Code, Diageo discloses in its Annual Report the results and means of evaluation of the Board, its Committees and the Directors, and it provides extensive information regarding the Directors’ compensation in the Directors’ remuneration report.

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Code of ethics: NYSE rules require a Code of Business Conduct and ethics to be adopted for directors, officers and employees and disclosure of any waivers for executive directors or officers. Diageo has adopted a code of business conduct for all directors, officers and employees, as well as a code of ethics for Senior Officers in accordance with the requirements of SOX. Currently, no waivers have been granted to directors or executive officers.

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Compliance certification: NYSE rules require chief executives to certify to the NYSE their awareness of any NYSE corporate governance violations. Diageo is exempt from this as a foreign private issuer but is required to notify the NYSE if any executive officer becomes aware of any non-compliance with NYSE corporate governance standards. No such notification was necessary during the period covered by this report.

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–	monitoring the integrity of the financial statements, including a review of the significant financial reporting judgements contained in them;

–	reviewing the effectiveness of the group’s internal control and risk management and of control over financial reporting;

–	monitoring and reviewing the effectiveness of the global audit and risk function, including reviewing the programme of work undertaken by that function;

–	reviewing the group’s policies and practices concerning business conduct and ethics, including whistleblowing;

–	overseeing the group’s overall approach to securing compliance with laws, regulations and company policies in areas of risk; and

–	monitoring and reviewing the company’s relationship with the external auditor, including its independence and management’s response to any major external audit recommendations.

–	Disclosure on the quality of the earnings (material items of income or expense) and one-off items included in cash flow. The Audit Committee agreed that sufficient disclosure was made in the financial statements.

–	The Audit Committee determined that exceptional items are appropriately classified considering their size and nature, and sufficient disclosure is provided in the financial statements (see note 4).

–	Review of carrying value of assets, in particular intangible assets. The Audit Committee assessed the impairment charge recognised and agreed that, at 30 June 2020, the recoverable amount of the company’s assets was in excess of their carrying value (see notes 6, 9 and 10).

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–	Exchange rate used to translate operations in Venezuela. The Audit Committee agreed that the rate is reasonable for the year ended 30 June 2020 for consolidation purposes, that represents the best estimation of the rate at which capital and dividend repatriations are expected to be realised (see note 1).

–	Disclosure on taxation. The Audit Committee agreed that the separate presentation of the tax risk appropriately addresses the significant change in the international tax environment and sufficient and transparent disclosures are provided for the ongoing tax discussions (see page 28 and note 7).

–	Review of legal cases. The Audit Committee agreed that adequate provision and/or disclosure has been made for all material litigation and disputes, based on the current most likely outcomes, including the litigation summarised in note 18.

–	Assumptions used in respect of post employment plans. Having considered advice from external actuaries and assumptions used by companies with comparator plans, the Audit Committee agreed that the assumptions used to calculate the income statement and balance sheet assets and liabilities for post employment plans were appropriate (see note 13).

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Viability statement. The Audit Committee noted that severe but plausible risk scenarios had been identified; a robust risk assessment had been carried out; and the group’s viability and going concern consideration proved with stress testing. Taking into account the company’s balance sheet position, the Audit Committee expected the group to be able to meet its liabilities as they fell due over the three-year period ending 30 June 2023. The risk that the group would become insolvent during this timeframe was considered remote. The Audit Committee recommended to the Board that the Viability statement be approved.

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–	the consideration of the talent pipeline for potential new appointments to the Board including potential new Non-Executive Directors

–	the review of Board, committee and individual Director performance as part of the annual evaluation process

–	a review of the Executive Committee membership and succession planning for it and for senior leadership positions

–	preparation and adoption of a Board Diversity Policy

–	appointment of a new Senior Independent Director.

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–	The proposed Directors’ remuneration policy, to be approved at the 2020 AGM; and

–	The annual remuneration report, describing how the policy has been put into practice during 2020, and how the new policy will be implemented in 2021.

–	Delivery of business strategy;

–	Creating sustainable, long-term performance;

–	Winning best talent; and

–	Consideration of stakeholder interests.

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–	Maximum pension contribution for new-hire Executive Directors set at 14% of salary, in line with the maximum offered to new-hire employees in the United Kingdom;

–	Commitment to align incumbent Executive Director pension contributions with the maximum offered to new-hire employees in the United Kingdom by 1 January 2023;

–	Introduction of new bonus deferral share plan, requiring Executive Directors to defer one-third of their earned annual bonus into shares for three years; and

–	Introduction of a post employment shareholding policy, requiring Executive Directors to hold some of their Diageo shares for two years after leaving the company.

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–	Challenges and opportunities relating to the attraction and retention of key talent and the market competitiveness of specialist and critical roles (for example, in digital and e-commerce);

–	Pay philosophy and pay positioning globally;

–	Review of the gender pay gap report for the UK;

–	Differentiation of global reward outcomes and incentive payouts (where there is an individual element to recognise performance and potential) by gender; and

–	The review of global benefits programmes to better leverage economies of scale, to provide more consistent standards across the core offering and to provide more flexibility and choice, where possible, in line with the reward philosophy and in support of the company's culture of inclusion and diversity.

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(i)	Performance against the AIP measures is calculated using 2020 budgeted exchange rates in line with management reporting and excludes the impact of exchange and any exceptional items.

(ii)	For AIP purposes, the net sales and operating profit measures are calculated after adjustments for acquisitions and disposals at budgeted foreign exchange rates.

(iii)	For AIP purposes, average working capital as a percentage of net sales is calculated as the average of the last 12 months of operating working capital (excluding maturing inventories and restructuring provisions) divided by annual net sales.

(iv)	AIP payments are calculated using base salary as at 30 June 2020, in line with the global policy that applies to other employees across the company.

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

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

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

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

–	cumulative adjusted free cash flow.

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(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 10 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)	The total number of share options granted under the DLTIP in September 2016 and showing as outstanding as at 30 June 2020 are vested but unexercised share options.

(iv)	Awards made of performance shares and share options under the DLTIP in September 2017 and due to vest in September 2020 are included here as unvested share awards subject to performance conditions, although the awards have also been included in the single figure of remuneration table on page 176, since the performance period ended during the year ended 30 June 2020.

(v)

Details of the performance conditions attached to DLTIP awards of performance shares and share options granted in 2018 are organic net sales growth (3.75% – 6%), organic growth in profit before exceptional items and tax (4.5% – 10.5%), cumulative free cash flow (£7,400m – £8,700m) and relative total shareholder return (median–upper quintile). Full details of the performance conditions were disclosed in Diageo’s 2018 annual report on remuneration.

(vi)	1,419 Ords of this award were delivered as tax-qualified share options.

(vii)	Ivan Menezes must retain 26,583 ADRs of the 48,539 shares that vested on 5 September 2019 until 5 September 2021 under the post-vesting retention period.

(viii)	Kathryn Mikells must retain 63,854 Ords of the 114,529 shares that vested on 4 September 2019 until 5 September 2021 under the post-vesting retention period.

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(iv)	In addition to the number of shares reported in the table above, Ivan Menezes holds 69,629 number of vested but unexercised share options (over ADRs; equal to 278,516 ordinary shares).

(v)	In addition to the number of shares reported in the table above, Kathryn Mikells holds 93,752 vested but unexercised share options (over ordinary shares).

(ix)	No share options were exercised by the Directors during the year ended 30 June 2020.

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

(i)	2019 CEO pay ratios have been updated to reflect the value of the updated 2019 single figure of remuneration, which incorporates long-term incentives based on actual share price at vesting, rather than the average share price in the last three months of the financial year, which had been used as a proxy for the 2019 disclosure.

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

(iii)

The total remuneration for employees is based on actual earnings for the 11 months to 31 May 2020, and a projection for June 2020 that replicates the relevant items of the previous month’s earnings. This pragmatic approach provides an accurate calculation of the ratios, while mitigating the challenge of the limited timeframe between the end of the financial year and the publishing of the Annual Report. Pay changes from May to June would seldom be material. This assumption was tested by replicating the 2019 calculation using actual earnings for June 2019, which resulted in no change to the median employee total pay and benefits figure for 2019 and indicated that the maximum variance in the median pay ratio in any given year would be 1 point only.

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(i)

Calculated by dividing staff cost related to salaries, bonus and benefits by the average number of employees on a full-time equivalent basis, as disclosed in the financial statements under Staff cost and average number of employees (note 3c) on pages 212 and 213, but reduced to account for the inclusion of Executive Directors in reported figures. The salary, bonus and benefits are subsets of the Wages and Salaries figure disclosed in note 3c. In line with the approach for the Directors, the bonus reflects the payouts in relation to performance during the relevant financial year.

(ii)	Calculated using the data from the single figure table in the annual report on remuneration (page 176) in US dollars, as both Ivan Menezes and Kathryn Mikells are paid in this currency.

(iii)	Calculated using the fees and taxable benefits disclosed under Non-Executive Directors’ remuneration in the table below. Taxable benefits for Non-Executive Directors comprise a product allowance as well as expense reimbursements relating to attendance at Board meetings, which may be variable year-on-year and have not exceeded £10k in total.

(iv)	Debra Crew was appointed to the Board on 18 April 2019 and stood down on 24 March 2020. To enable comparison and to provide a meaningful reflection of annual percentage increase, for the purposes of this calculation, her 2019 and 2020 fees were adjusted to reflect full-year appointment to the Board.

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(i)

Taxable benefits include a contracted car service, product allowance and expense reimbursements relating to travel, accommodation and subsistence in connection with the attendance at Board meetings during the year, which are deemed by HMRC to be taxable in the United Kingdom. The amounts in the single figure of total remuneration table above include 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)	£100,000 of Javier Ferrán’s net remuneration in the year ended 30 June 2020 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)	Melissa Bethell was appointed to the Board on 30 June 2020 and received £377 in fees for the year ended 30 June 2020.

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

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

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

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

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–	carbon reduction in direct operations;

–	water efficiency in direct operations;

–	number of people with positive attitudinal change on the dangers of underage drinking following participation in the Smashed education programme; and

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

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

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

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

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

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

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(i)	On 5 February 2020, BlackRock Inc. filed an Amendment to Schedule 13G with the SEC in respect of the calendar year ended 31 December 2019 reporting that 166,511,608 ordinary shares representing 7.1% of the issued ordinary share capital were beneficially owned by BlackRock Inc. and its subsidiaries (including BlackRock Investment Management (UK) Limited).

(ii)	On 14 February 2020, Massachusetts Financial Services Company filed a Schedule 13G with the SEC in respect of the calendar year ended 31 December 2019 reporting that 123,237,269 ordinary shares representing 5.3% of the issued ordinary share capital were beneficially owned by Massachusetts Financial Services Company.

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–	Exceptional items – management judgement whether exceptional or not – page 213

–	Taxation – management judgement of whether a provision is required and management estimate of amount of corporate tax payable or receivable, the recoverability of deferred tax assets and expectation on manner of recovery of deferred taxes – pages 219 and 220

–	Brands, goodwill and other intangibles – management judgement of the assets to be recognised and synergies resulting from an acquisition. Management judgement and estimate are required in determining future cash flows and appropriate applicable assumptions to support the intangible asset value – page 228

–	Post employment benefits – management judgement in determining whether a surplus can be recovered and management estimate in determining the assumptions in calculating the liabilities of the funds – page 239

–	Contingent liabilities and legal proceedings – management judgement in assessing the likelihood of whether a liability will arise and an estimate to quantify the possible range of any settlement and significant unprovided tax matters where maximum exposure is provided for each – page 269

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–	Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures

–	Amendments to IFRS 9 - Prepayment Features with Negative Compensation

–	Improvements to IFRS 3 and IFRS 11 - Business combinations and Joint arrangements - Accounting for previously held interests

–	Improvements to IAS 12 - Income taxes - Accounting for income tax consequences of payments on financial instruments that are classified as equity

–	Improvements to IAS 23 - Borrowing costs on completed qualifying assets

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(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.

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(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.

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

(ii)	Other assurance services comprise the aggregate fees for assurance and related services that are in respect of the performance of the audit or review of the financial statements and are not reported under ‘total audit fees’.

(1)

Disclosure requirements for auditor fees in the United States are different from those required in the United Kingdom. The terminology by category required in the United States is disclosed in brackets in the above table. All figures are the same for the disclosures in the United Kingdom and the United States apart from £0.4 million ( 2019 – £0.4 million ; 2018 – £0.4 million ) of the cost in respect of the review of the interim financial information which would be included in audit related fees in the United States rather than audit fees.

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(i)	Includes £46 million interest income and £(471) million interest charge in respect of  financial assets and liabilities that are not measured at fair value through the income statement ( 2019 - £86 million income and £(439) million charge; 2018 - £73 million income and £(394) million charge).

(ii)	The presentation of the years ended 30 June 2019 and 30 June 2018 have been changed due to a reclassification to include £302 million ( 2018 - £269 million ) of interest in respect of bonds formerly included previously in ‘interest charge on all other borrowings’.

(iii)	Interest expense of £9 million for the year ended 30 June 2020 in respect of leases that in prior years were classified as operating leases under the previous accounting standard (and were charged to other external charges) and following the adoption of IFRS 16 have now been capitalised.

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

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(i)	Other movements in the year ended 30 June 2019 comprise £20 million of advances promised to associates at 30 June 2019 , on achieving certain performance targets which are now only recognised when those targets are achieved. There was a corresponding decrease of £20 million in other payables.

(1)	Investment in associates balance includes loans given to and preference shares invested in associates of £82 million ( 2019 – £55 million ).

(2)	If certain performance targets are met by associates in the Distill Ventures programmes, an additional £22 million ( 2019 - £31 million ) will be invested in those associates.

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(1)	Including acquisition fair value adjustments principally in respect of Moët Hennessy’s brands and translated at £1 = €1.09 ( 2019 – £1 = €1.12 ).

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(i)	Exceptional tax credit of £165 million consists of the impairment of the Windsor and USL brands of £105 million and £25 million , respectively, exceptional tax credits in respect of fixed assets impairments in Nigeria and Ethiopia of £25 million and £10 million , respectively.

(iii)

During the year ended 30 June 2019 the Dutch Senate agreed to a phased reduction in the Dutch corporate tax rate which is effective from 1 January 2020 . An exceptional tax credit of £51 million principally arose from remeasuring the deferred tax liabilities in respect of the Ketel One vodka distribution rights from a then anticipated tax rate of 25% to 20.5%. The Dutch Senate subsequently agreed in a tax rate of 21.7% on 19 December 2019. The remeasurement of deferred tax liabilities in the year ended 30 June 2020 was recognised as a current tax charge.

(1)

Diageo has launched the “Raising the Bar” programme to support pubs and bars to welcome customers back and recover following the Covid-19 pandemic including a commitment of £100 million ( £81 million ) over a period of up to two years from July 1, 2020 . Due to current uncertainty on the precise nature of the spend, it cannot be determined whether the amounts will be deductible for tax purposes in future periods. As a result, no deferred tax asset has been recognized in respect of the provision at the year ended June 30, 2020 .

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(i)	Other items not deductible include controlled foreign companies charge, irrecoverable withholding tax and additional state and local taxes.

(ii)	Changes in tax rates for the year ended 30 June 2020 mainly due to the Netherlands, UK, India and Kenya. Changes in tax rates for the year ended 30 June 2019 principally arose from the tax rate change in the Netherlands. Changes in tax rates for the year ended 30 June 2018 was mainly due to the application of the TCJA.

(iii)	Adjustment in respect of prior years for the year ended 30 June 2019 includes £61 million exceptional tax charge in respect of the French tax audit settlement. The £166 million prior year adjustment for the year ended 30 June 2018 is principally in respect of the exceptional tax charge in respect of the UK transfer pricing agreement.

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

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–	the future development of the virus, including the duration, scale and geographic extent of the closures;

–	the expected scale and duration of the economic recovery;

–	the size of the on-trade channel in the market;

–	the life cycle phase of the brand and the maturity of the market.

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Cash flows are projected based on the actual operating results and a three -year plan approved by the management. Cash flows are extrapolated up to five -years using expected growth rates in line with management’s best estimates. Growth rates reflect expectations of sales growth, operating costs and margin, based on past experience and external sources of information. Where applicable, multiple cash flow scenarios were populated to predict the potential outcome, considering the increased risk of uncertainty around the duration and severity of the Covid-19 pandemic in the different markets. A simple average of these projections served as the estimation of the recoverable amount of the cash-generating units including the goodwill of USL, Indian brands, Nigeria and Windsor Premier brand. Management has no information which would indicate that any of the scenarios are more likely than the others;

–

The five -year forecast period is extended by up to an additional ten years at acquisition date for some intangible assets and goodwill when management believes that this period is justified by the maturity of the market and expects to achieve growth in excess of the terminal growth rate driven by Diageo’s sales, marketing and distribution expertise. Cash flows beyond the five -year period are projected using steady or progressively declining growth rates. These rates do not exceed the annual growth rate of the real gross domestic product (GDP) aggregated with the long-term annual inflation rate of the country or region;

–	Cash flows for the subsequent years after the forecast period are extrapolated based on a terminal growth rate which does not exceed the long-term annual inflation rate of the country or region.

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( i)

Reasonably possible changes in key assumptions that would result in an additional impairment of the India cash-generating unit, Bagpiper, Antiquity and McDowell's No.1 brands would be a 1ppt increase in discount rate or a 2ppt decrease in the annual growth rate in forecast period of 2021-2029 or a 0.5-1ppt reduction in the rate of price increase. Furthermore, due to the Covid-19 pandemic, a permanent delay of the F20 lost base recovery period is also considered to be a reasonably possible scenario due to the severity of measures taken in India and the introduction of unprecedented increase of taxes on alcohol. In the Covid-19 scenario above it was assumed that F19 base will be reached by F25.

(ii)	Due to the high-level uncertainty of the Covid-19 pandemic, additional possible changes in volume growth rates are forecasted assuming permanent damage of local whisky category with no recovery to F19 levels based on latest outlook of IWSR reports, and the fact that the majority of sales are on-trade.

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(i)	to not capitalise leases which expire within a year of 1 July 2019;

(ii)	to apply a single discount rate to portfolios of leases with similar characteristics; and

(iii)	to adjust the right-of-use asset by the amount of any provision for onerous leases recognised immediately before the date of initial application.

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(i)	In the year ended 30 June 2019, the group only recognised lease liabilities in relation to leases that were classified as finance leases under IAS 17 - Leases. The lease liabilities were presented as part of the group’s net borrowings in the year ended 30 June 2019.

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(i)

The Diageo Pension Scheme (DPS) closed to new members in November 2005 . Employees who have joined Diageo in the United Kingdom since the defined benefit scheme closed had been eligible to become members of the Diageo Lifestyle Plan (a cash balance defined benefit pension plan) until 1 January 2018 . Since then new employees have been eligible to become members of a Diageo administered defined contribution plan.

(ii)	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.

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(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.

(i)	Based on the CMI’s S2 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.

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(i)	The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps held 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).

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(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.

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(i)	The floating rate portion of net borrowings includes cash and cash equivalents, collaterals, floating rate loans and bonds and bank overdrafts.

(ii)	At 30 June 2019 the group reported lease liabilities of £128 million in respect of leases that met the criteria of ‘finance leases’ under IAS 17 - Leases,  in the floating rate categorisation. As at 30 June 2020 Lease liabilities are disclosed separately.

(1)	For this calculation, net interest charge excludes fair value adjustments to derivative financial instruments and borrowings and average monthly net borrowings includes the impact of interest rate swaps that are no longer in a hedge relationship but excludes the market value adjustment for cross currency interest rate swaps.

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(i)	The impact on foreign currency borrowings and derivatives in net investment hedges is largely offset by the foreign exchange difference arising on the translation of net investments.

(ii)	The impact on the consolidated statement of comprehensive income includes the impact on the income statement.

(iii)	The year ended 30 June 2019 has been restated to reflect the increase or decrease of 0.5% in market interest rates from the rates applicable at 30 June 2019.

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(i)	For the purpose of these tables above, borrowings are defined as gross borrowings excluding lease liabilities and fair value of derivative instruments as disclosed in note 16.

(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, interest on derivatives and interest on other payable is included within interest payable in note 14.

(iv)	For the year ended 30 June 2019 lease liabilities only include liabilities that met the criteria of 'finance leases' under IAS 17 - Leases.

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(i)	Other investments and loans are including those in respect of associates.

(ii)	Borrowings are defined as gross borrowings excluding lease liabilities and the fair value of derivative instruments.

(iii)	In the year ended 30 June 2019 lease liabilities only include liabilities that met the criteria of 'finance leases' under IAS 17 - Leases.

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(i)	SEC-registered debt issued on an unsecured basis by Diageo Investment Corporation, a 100% owned finance subsidiary of Diageo plc.

(ii)	In the year ended 30 June 2019 lease liabilities only includes leases that were classified as finance leases under IAS 17 - Leases.

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(i)	In the year ended 30 June 2020 , net increase in bonds and other borrowings excludes £6 million cash outflow in respect of derivatives designated in forward point hedges ( 2019 - £12 million ).

(ii)	In the years ended 30 June 2020 other non-cash items are principally in respect of leases of £206 million entered into in the period partially offset by the fair value changes of cross currency interest rate swaps. In the year ended 30 June 2019 other non-cash items are principally in respect of changes in the fair value of borrowings.

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(i)	Includes foreign currency forwards and swaps and leases.

(ii)	Includes £100 million (Turkish lira) cash and cash equivalents in cash-pooling arrangements ( 2019 - £122 million (Turkish lira)).

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(i)	Other comprehensive income is principally in respect of exchange on translating the subsidiaries to sterling.

(ii)	Non-current assets include the global distribution rights to distribute Ketel One vodka products throughout the world. The carrying value of the distribution rights at 30 June 2020 was £1,464 million ( 2019 – £1,418 million ; 2018 – £1,363 million ).

(1)	On 29 July 2019 East African Breweries Limited completed a purchase of 4% of the share capital of Serengeti Breweries Limited. This increased Diageo’s effective economic interest from 39.2% to 40.2% .

(2)	On 20 August 2019 and 28 February 2020 Diageo completed the purchase of 0.46% and 0.7% of the share capital of United Spirits Limited (USL) respectively. This increased Diageo’s controlling shareholding position from 54.78% to 55.94% , excluding 2.38% owned by the USL Share Trust.

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(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.

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(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)	Percentage ownership excludes 2.38% owned by the USL Benefit Trust.

(iii)	Directly owned by Diageo plc.

(iv)	French limited liability company.

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•	the chairman of the general meeting;

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

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

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

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

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

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•	reaches, exceeds or falls below 3% and/or any subsequent whole percentage figure as a result of an acquisition or disposal of shares or financial instruments; or

•	reaches, exceeds or falls below any such threshold as a result of any change in the breakdown or number of voting rights attached to shares in Diageo.

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•	a dealer in securities or foreign currency;

•	a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

•	a tax-exempt organisation;

•	a life insurance company;

•	a person liable for alternative minimum tax;

•	a person that actually or constructively owns 10% or more of the combined voting power of voting stock of Diageo or of the total value of stock of Diageo;

•	a person that holds ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction;

•	a person that holds ordinary shares or ADSs as part of a wash sale for tax purposes; or

•	a US holder (as defined below) whose functional currency is not the US dollar.

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•	a citizen or resident for tax purposes of the United States and who is not and has at no point been resident in the United Kingdom;

•	a US domestic corporation;

•	an estate whose income is subject to US federal income tax regardless of its source; or

•	a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust.

•	at the rate of 7.5%, to the extent that the relevant dividend income falls below the threshold for the higher rate of income tax;

•	at the rate of 32.5%, to the extent that the relevant dividend income falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax; and

•	at the rate of 38.1%, to the extent that the relevant dividend income falls above the threshold for the additional rate of income tax.

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