false31 December 20222023Q20000835403--06-3000008354032022-07-012022-12-31iso4217:GBP00008354032021-07-012021-12-31xbrli:sharesiso4217:GBPxbrli:shares00008354032022-12-3100008354032022-06-3000008354032021-12-310000835403ifrs-full:IssuedCapitalMember2021-06-300000835403ifrs-full:SharePremiumMember2021-06-300000835403ifrs-full:OtherReservesMember2021-06-300000835403ifrs-full:TreasurySharesMember2021-06-300000835403deo:OtherRetainedEarningsMember2021-06-300000835403ifrs-full:RetainedEarningsMember2021-06-300000835403ifrs-full:EquityAttributableToOwnersOfParentMember2021-06-300000835403ifrs-full:NoncontrollingInterestsMember2021-06-3000008354032021-06-300000835403deo:OtherRetainedEarningsMember2021-07-012021-12-310000835403ifrs-full:RetainedEarningsMember2021-07-012021-12-310000835403ifrs-full:EquityAttributableToOwnersOfParentMember2021-07-012021-12-310000835403ifrs-full:NoncontrollingInterestsMember2021-07-012021-12-310000835403ifrs-full:OtherReservesMember2021-07-012021-12-310000835403ifrs-full:TreasurySharesMember2021-07-012021-12-310000835403ifrs-full:IssuedCapitalMember2021-07-012021-12-310000835403ifrs-full:IssuedCapitalMember2021-12-310000835403ifrs-full:SharePremiumMember2021-12-310000835403ifrs-full:OtherReservesMember2021-12-310000835403ifrs-full:TreasurySharesMember2021-12-310000835403deo:OtherRetainedEarningsMember2021-12-310000835403ifrs-full:RetainedEarningsMember2021-12-310000835403ifrs-full:EquityAttributableToOwnersOfParentMember2021-12-310000835403ifrs-full:NoncontrollingInterestsMember2021-12-310000835403ifrs-full:IssuedCapitalMember2022-06-300000835403ifrs-full:SharePremiumMember2022-06-300000835403ifrs-full:OtherReservesMember2022-06-300000835403ifrs-full:TreasurySharesMember2022-06-300000835403deo:OtherRetainedEarningsMember2022-06-300000835403ifrs-full:RetainedEarningsMember2022-06-300000835403ifrs-full:EquityAttributableToOwnersOfParentMember2022-06-300000835403ifrs-full:NoncontrollingInterestsMember2022-06-300000835403deo:OtherRetainedEarningsMember2022-07-012022-12-310000835403ifrs-full:RetainedEarningsMember2022-07-012022-12-310000835403ifrs-full:EquityAttributableToOwnersOfParentMember2022-07-012022-12-310000835403ifrs-full:NoncontrollingInterestsMember2022-07-012022-12-310000835403ifrs-full:OtherReservesMember2022-07-012022-12-310000835403ifrs-full:TreasurySharesMember2022-07-012022-12-310000835403ifrs-full:IssuedCapitalMember2022-07-012022-12-310000835403ifrs-full:IssuedCapitalMember2022-12-310000835403ifrs-full:SharePremiumMember2022-12-310000835403ifrs-full:OtherReservesMember2022-12-310000835403ifrs-full:TreasurySharesMember2022-12-310000835403deo:OtherRetainedEarningsMember2022-12-310000835403ifrs-full:RetainedEarningsMember2022-12-310000835403ifrs-full:EquityAttributableToOwnersOfParentMember2022-12-310000835403ifrs-full:NoncontrollingInterestsMember2022-12-310000835403deo:USShelfProgrammeMembercurrency:USD2022-12-31iso4217:USD0000835403currency:USD2022-07-012022-12-31iso4217:USDiso4217:GBP0000835403currency:USD2021-07-012021-12-310000835403currency:EUR2022-07-012022-12-31iso4217:EURiso4217:GBP0000835403currency:EUR2021-07-012021-12-310000835403currency:USD2022-12-310000835403currency:USD2021-12-310000835403currency:USD2022-06-300000835403currency:EUR2022-12-310000835403currency:EUR2021-12-310000835403currency:EUR2022-06-300000835403ifrs-full:OperatingSegmentsMemberdeo:NorthAmericaSegmentsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:EuropeSegmentsMember2022-07-012022-12-310000835403deo:AsiaPacificSegmentsMemberifrs-full:OperatingSegmentsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:LatinAmericaAndCaribbeanSegmentsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:AfricaSegmentsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:SupplyChainAndProcurementMember2022-07-012022-12-310000835403ifrs-full:EliminationOfIntersegmentAmountsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMember2022-07-012022-12-310000835403ifrs-full:UnallocatedAmountsMember2022-07-012022-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:NorthAmericaSegmentsMember2021-07-012021-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:EuropeSegmentsMember2021-07-012021-12-310000835403deo:AsiaPacificSegmentsMemberifrs-full:OperatingSegmentsMember2021-07-012021-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:LatinAmericaAndCaribbeanSegmentsMember2021-07-012021-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:AfricaSegmentsMember2021-07-012021-12-310000835403ifrs-full:OperatingSegmentsMemberdeo:SupplyChainAndProcurementMember2021-07-012021-12-310000835403ifrs-full:EliminationOfIntersegmentAmountsMember2021-07-012021-12-310000835403ifrs-full:OperatingSegmentsMember2021-07-012021-12-310000835403ifrs-full:UnallocatedAmountsMember2021-07-012021-12-3100008354032022-09-012022-12-31xbrli:pure0000835403deo:SpiritsMember2022-07-012022-12-310000835403deo:BeerMember2022-07-012022-12-310000835403deo:ReadyToDrinkMember2022-07-012022-12-310000835403deo:OtherProductMember2022-07-012022-12-310000835403country:US2022-07-012022-12-310000835403country:IN2022-07-012022-12-310000835403country:GB2022-07-012022-12-310000835403deo:RestOfWorldMember2022-07-012022-12-310000835403deo:SpiritsMember2021-07-012021-12-310000835403deo:BeerMember2021-07-012021-12-310000835403deo:ReadyToDrinkMember2021-07-012021-12-310000835403deo:OtherProductMember2021-07-012021-12-310000835403country:US2021-07-012021-12-310000835403country:IN2021-07-012021-12-310000835403country:GB2021-07-012021-12-310000835403deo:RestOfWorldMember2021-07-012021-12-310000835403deo:SupplyChainAgilityProgrammeMember2022-07-012022-12-310000835403deo:SupplyChainAgilityProgrammeMember2021-07-012021-12-310000835403deo:WindingDownRussianOperationsMember2022-07-012022-12-310000835403deo:WindingDownRussianOperationsMember2021-07-012021-12-310000835403deo:ExceptionalItemsMember2022-07-012022-12-310000835403deo:ExceptionalItemsMember2021-07-012021-12-310000835403deo:ArcherBrandMember2022-07-012022-12-310000835403deo:ArcherBrandMember2021-07-012021-12-310000835403deo:USLPopularBrandMember2022-07-012022-12-310000835403deo:USLPopularBrandMember2021-07-012021-12-310000835403deo:UnitedNationalBreweriesMember2022-07-012022-12-310000835403deo:UnitedNationalBreweriesMember2021-07-012021-12-310000835403deo:GuinnessCameroonSAMember2022-07-012022-12-310000835403deo:GuinnessCameroonSAMember2021-07-012021-12-310000835403deo:MetaAboBreweryMember2022-07-012022-12-310000835403deo:MetaAboBreweryMember2021-07-012021-12-310000835403deo:StepAcquisitionMember2022-07-012022-12-310000835403deo:StepAcquisitionMember2021-07-012021-12-310000835403deo:ExceptionalOperatingItemsMember2022-07-012022-12-310000835403deo:ExceptionalOperatingItemsMember2021-07-012021-12-310000835403deo:ExceptionalNonOperatingItemsMember2022-07-012022-12-310000835403deo:ExceptionalNonOperatingItemsMember2021-07-012021-12-310000835403deo:ExceptionalTaxationMember2022-07-012022-12-310000835403deo:ExceptionalTaxationMember2021-07-012021-12-310000835403srt:MaximumMemberdeo:SupplyChainAgilityProgrammeMember2022-07-012022-12-310000835403deo:WindingDownRussianOperationsMember2021-07-012022-06-300000835403deo:USLPopularBrandMember2022-09-302022-09-300000835403deo:USLPopularBrandMemberdeo:USLPopularBrandMember2022-09-302022-09-300000835403deo:USLPopularBrandMemberdeo:USLPopularBrandMember2022-09-300000835403deo:USLPopularBrandMemberdeo:USLPopularBrandMember2022-07-012022-12-31iso4217:ZAR0000835403country:VE2022-07-012022-12-310000835403country:VE2021-07-012021-12-310000835403country:TR2022-07-012022-12-310000835403country:TR2021-07-012021-12-310000835403deo:VenezuelanBolivarSoberanoMembercountry:VE2022-12-31iso4217:VEBiso4217:GBP0000835403deo:VenezuelanBolivarSoberanoMembercountry:VE2021-12-310000835403deo:VenezuelanBolivarSoberanoMemberifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2022-12-310000835403deo:VenezuelanBolivarSoberanoMemberifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2021-12-310000835403ifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2022-07-012022-12-310000835403ifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2021-07-012021-12-310000835403country:VE2022-12-310000835403ifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2022-12-310000835403country:VE2021-12-310000835403ifrs-full:ReportedIfInComplianceWithRequirementOfIFRSMembercountry:VE2021-12-310000835403ifrs-full:ForeignCountriesMember2022-07-012022-12-310000835403ifrs-full:ForeignCountriesMember2021-07-012021-12-310000835403deo:USMAPMember2022-07-012022-12-310000835403deo:A500MillionDollars52BondsDue2025Member2022-12-310000835403deo:A750MillionDollars53BondsDue2027Member2022-12-310000835403deo:A750MillionDollars55BondsDue2033Member2022-12-31iso4217:EUR0000835403deo:IndustriasLicorerasDeGuatemalaMember2022-07-012022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:IndustriasLicorerasDeGuatemalaMember2022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:IndustriasLicorerasDeGuatemalaMember2022-06-300000835403deo:OptionExercisedTwoYearsLaterMemberdeo:IndustriasLicorerasDeGuatemalaMember2023-07-012024-06-300000835403ifrs-full:ContingentConsiderationMemberdeo:UndiscountedAmountMemberifrs-full:BusinessCombinationsMember2022-12-310000835403ifrs-full:BusinessCombinationsMember2022-07-012022-12-310000835403ifrs-full:Level2OfFairValueHierarchyMember2022-12-310000835403ifrs-full:Level2OfFairValueHierarchyMember2022-06-300000835403ifrs-full:Level2OfFairValueHierarchyMember2021-12-310000835403ifrs-full:Level3OfFairValueHierarchyMember2022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMember2022-06-300000835403ifrs-full:Level3OfFairValueHierarchyMember2021-12-310000835403ifrs-full:Level3OfFairValueHierarchyMember2022-07-012022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMember2021-07-012021-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2022-06-300000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2022-06-300000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2021-06-300000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2021-06-300000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2022-07-012022-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2022-07-012022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2021-07-012021-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2021-07-012021-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2022-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2022-12-310000835403ifrs-full:Level3OfFairValueHierarchyMemberdeo:PutOptionMember2021-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2021-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMemberdeo:AviationGinAndDavosBrandsMember2022-12-310000835403ifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMemberdeo:AviationGinAndDavosBrandsMember2021-12-310000835403deo:A21SeedMemberifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2022-12-310000835403deo:A21SeedMemberifrs-full:ContingentConsiderationMemberifrs-full:Level3OfFairValueHierarchyMember2021-12-310000835403ifrs-full:ContingentConsiderationMemberdeo:LoneRiverRanchWaterBrandMemberifrs-full:Level3OfFairValueHierarchyMember2022-12-310000835403ifrs-full:ContingentConsiderationMemberdeo:LoneRiverRanchWaterBrandMemberifrs-full:Level3OfFairValueHierarchyMember2021-12-310000835403ifrs-full:Level1OfFairValueHierarchyMemberifrs-full:AtFairValueMember2022-12-310000835403ifrs-full:Level1OfFairValueHierarchyMemberifrs-full:AtFairValueMember2022-06-3000008354032021-07-012022-06-3000008354032020-07-012021-06-300000835403ifrs-full:MajorOrdinaryShareTransactionsMember2023-01-252023-01-250000835403ifrs-full:AtFairValueMember2022-12-310000835403ifrs-full:ContingentConsiderationMember2022-12-310000835403deo:DeferredConsiderationMember2022-12-310000835403deo:AggregatedIndividuallyImmaterialSubsidiariesMember2022-12-310000835403ifrs-full:AggregatedIndividuallyImmaterialBusinessCombinationsMember2022-12-310000835403ifrs-full:AggregatedIndividuallyImmaterialAssociatesMember2022-12-310000835403deo:PriorYearBusinessCombinationsMemberifrs-full:AggregatedIndividuallyImmaterialBusinessCombinationsMember2022-12-310000835403deo:PriorYearBusinessCombinationsMemberdeo:AggregatedIndividuallyImmaterialSubsidiariesMember2022-12-310000835403ifrs-full:DisposalGroupsClassifiedAsHeldForSaleMember2022-12-310000835403ifrs-full:DisposalGroupsClassifiedAsHeldForSaleMember2022-06-300000835403deo:GuinnessCameroonSAMember2022-07-142022-07-140000835403deo:UnitedSpiritsLimitedMember2013-07-040000835403deo:UnitedSpiritsLimitedMemberdeo:UBHLMember2013-07-040000835403deo:UnitedSpiritsLimitedMember2020-12-312020-12-310000835403deo:UnitedSpiritsLimitedMemberdeo:USLBenefitTrustMember2020-12-312020-12-310000835403deo:UnitedSpiritsLimitedMemberdeo:UBHLMember2013-07-042013-07-04iso4217:INRxbrli:shares0000835403deo:TwentyFiveFebruaryAgreementMemberdeo:DrMallyaMember2016-02-252016-02-250000835403deo:TwentyFiveFebruaryAgreementMemberdeo:DrMallyaMember2016-02-250000835403deo:UBHLMemberdeo:SharePurchaseAgreementMember2012-11-092012-11-09deo:Petition0000835403deo:TwentyFiveFebruaryAgreementMemberdeo:WatsonLimitedMember2016-02-252016-02-250000835403deo:TwentyFiveFebruaryAgreementMemberdeo:WatsonLimitedMember2017-11-162017-11-160000835403deo:TwentyFiveFebruaryAgreementMemberdeo:DrMallyaMember2018-03-122018-03-12deo:instalment0000835403deo:WatsonLimitedMember2019-05-242019-05-240000835403deo:ContinentalAdministrationServicesLimitedCASLMember2019-05-232019-05-230000835403deo:UnitedSpiritsLimitedMember2022-07-012022-12-310000835403deo:IDBIBankLimitedMemberdeo:UnitedSpiritsLimitedMemberdeo:IDBITermLoanMember2013-07-03iso4217:INR0000835403deo:IDBIBankLimitedMemberdeo:UnitedSpiritsLimitedMember2015-04-012015-04-010000835403ifrs-full:TaxContingentLiabilityMemberifrs-full:TopOfRangeMembercountry:BR2022-12-310000835403ifrs-full:TaxContingentLiabilityMembercountry:INifrs-full:TopOfRangeMember2022-12-310000835403country:IN2022-12-310000835403deo:DiageoPensionTrustLimitedMember2022-10-31deo:credit_agreement0000835403deo:DiageoLifestylePlanMemberdeo:DiageoPensionTrustLimitedMember2022-10-310000835403deo:DiageoPensionSchemeMemberdeo:DiageoPensionTrustLimitedMember2022-10-310000835403deo:DiageoPensionTrustLimitedMember2022-12-310000835403ifrs-full:MajorBusinessCombinationMemberdeo:DonPapaRumMember2023-01-172023-01-170000835403ifrs-full:MajorBusinessCombinationMemberdeo:DonPapaRumMember2023-01-17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
31 January 2023
Commission File Number 1-10691
DIAGEO plc
(Translation of registrant’s name into English)
16 Great Marlborough Street, London W1F 7HS, England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F x          Form 40-F ¨

This report on Form 6-K shall be deemed to be filed and incorporated by reference in the registration statement on Form F-3 (File No. 333-242234) and registration statements on Form S-8 (File Nos. 333-223071, 333-206290, 333-169934, 333-162490, 333-153481, 333-154338 and 333-182315) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.



INDEX TO FORM 6-K
Page
3 
3 
4 
5 
7 
8 
8 
9 
10 
39 
42 
F- 1
F- 2
F- 3
F- 4
F- 5
F- 6
F- 7


2
INTRODUCTION

Diageo plc is a public limited company incorporated under the laws of England and Wales. As used herein, except as the context otherwise requires, the term ‘company’ refers to Diageo plc and the terms ‘group’ and ‘Diageo’ refer to the company and its consolidated subsidiaries. References used herein to ‘shares’ and ‘ordinary shares’ are, except where otherwise specified, to Diageo plc’s ordinary shares.

PRESENTATION OF FINANCIAL INFORMATION

Diageo plc’s fiscal year ends on 30 June. The company publishes its consolidated financial statements in pound sterling. In this document, references to ‘pound sterling’, ‘sterling’, ‘£’, ‘pence’ or ‘p’ are to UK currency, references to ‘US dollars’, ‘US$’, ‘$’ or ‘¢’ are to US currency and references to the ‘euro’ or ‘€’ are to the euro currency. For the convenience of the reader, this document contains translations of certain pound sterling amounts into US dollars at specified rates, or, if not so specified, the noon buying rate in New York City for cable transfers in pound sterling as certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) on 31 December 2022 of £1 = $1.21. No representation is made that the pound sterling amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.

These unaudited condensed consolidated interim financial statements have been prepared in accordance with UK adopted IAS 34 ‘Interim Financial Reporting’, IAS 34 ‘Interim Financial Reporting’ as issued by the International Accounting Standards Board (‘IASB’), IAS 34 ‘Interim Financial Reporting’ as adopted by the EU and The Disclosure Guidance and Transparency Rules sourcebook of the UK’s Financial Conduct Authority. These financial statements should be read in conjunction with the company’s published consolidated financial statements for the year ended 30 June 2022, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted by the UK, IFRSs as adopted by the EU and IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee. IFRS as adopted by the UK and by the EU differs in certain respects from IFRS as issued by the IASB, but the differences have no impact on the group’s consolidated financial statements for the periods presented. The consolidated financial statements are prepared on a going concern basis under the historical cost convention, unless stated otherwise.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management when applying the group’s accounting policies and the significant areas where estimates were required were the same as those that applied to the consolidated financial statements for the year ended 30 June 2022, with the exception of changes in estimates disclosed in note 3 Exceptional items and note 13 Contingent liabilities and legal proceedings. These condensed consolidated interim financial statements were approved for issue on 25 January 2023.
The financial statements for Diageo plc for the year ending 30 June 2023 will be prepared in accordance with IFRS as adopted by the UK, IFRSs as adopted by the EU and IFRSs, as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee.
The business review and financial information included in this document for the six months ended 31 December 2022 and 31 December 2021 have been derived from the Diageo interim condensed consolidated financial information.

PricewaterhouseCoopers LLP has not audited, reviewed, examined, compiled nor applied agreed-upon procedures with respect to the medium term guidance financial performance expectations and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP report included in Diageo's annual report on Form 20-F for the year ended June 30, 2022 relates to Diageo’s historical financial statements. It does not extend to the medium term guidance financial performance expectations and should not be read to do so. The medium terms guidance financial performance expectations were not prepared with a view toward compliance with published guidelines of the Securities and Exchange Commission or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.
The principal executive office of the company is located at 16 Great Marlborough Street, London W1F 7HS, England and its telephone number is +44 (0) 20 7947 9100.

3

Medium-term guidance
It is not possible to reconcile the forecast tax rate before exceptional items, forecast capital expenditure, forecast organic net sales growth and forecast organic operating profit increase to the most comparable GAAP measure as it is not possible to predict, without unreasonable effort, with reasonable certainty, the future impact of changes in exchange rates, acquisitions and disposals and potential exceptional items.

MARKET DATA
The market data and competitive set classifications are taken from independent industry sources in the markets in which Diageo operates.
4
Cautionary statement concerning forward-looking statements

This document contains ‘forward-looking’ statements. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook, objectives and projections with respect to future matters, including the statements set forth in the 'Fiscal 23 Outlook' section and any other statements with respect to trends in results of operations, margins, growth rates, overall market trends, the impact of changes in interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, expected investments, the completion of any strategic transactions or restructuring programmes, anticipated tax rates, changes in the international tax environment, expected cash payments, outcomes of litigation or regulatory enquiries, anticipated changes in the value of assets and liabilities related to pension schemes and general economic conditions. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo's control.

These factors include, but are not limited to:
–economic, political, social or other developments in countries and markets in which Diageo operates, including macroeconomic events that may affect Diageo’s customers, suppliers and/or financial counterparties;
–the impact of the Covid-19 pandemic, or any other global or regional public health threats, on Diageo’s business, financial condition, cash flows and results of operation;
–the elevated geopolitical instability as a result of Russia’s invasion of Ukraine;
–the effects of climate change, or legal, regulatory or market measures intended to address climate change;
–changes in consumer preferences and tastes, including as a result of disruptive market forces, changes in demographics and evolving social trends (including any shifts in consumer tastes towards at-home occasions, premiumisation, small-batch craft alcohol, or lower or no alcohol products and/or developments in e-commerce);
–changes in the domestic and international tax environment that could lead to uncertainty around the application of existing and new tax laws and unexpected tax exposures;
–changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy due to inflation and/or supply chain disruptions;
–any litigation or other similar proceedings (including with tax, customs, competition, environmental, anti-corruption or other regulatory authorities);
–legal and regulatory developments, including changes in regulations relating to environmental issues and/or e-commerce;
–the consequences of any failure of internal controls;
–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;
–cyber-attacks or any other disruptions to core business operations;
–contamination, counterfeiting or other circumstances which could harm the level of customer support for Diageo’s brands and adversely impact its sales;
–Diageo’s ability to maintain its brand image and corporate reputation or to adapt to a changing media environment;
–increased competitive product and pricing pressures, including as a result of introductions of new products or categories that are competitive with Diageo’s products and consolidations by competitors and retailers;
–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 Diageo’s investments in e-commerce and its luxury portfolio;
–fluctuations in exchange rates and/or interest rates;
–a tightening of global financial conditions, including an extended period of constraint in the capital markets which Diageo may access;
–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.






5
All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above cautionary factors, by the ‘Risk Factors’ section immediately preceding those and by the ‘Risk Factors’ included in Diageo’s Annual Report on Form 20-F for the year ended 30 June 2022 filed with the US Securities and Exchange Commission. Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

This document includes names of Diageo’s products, which constitute trademarks or trade names which Diageo owns, or which others own and license to Diageo for use. All rights reserved. © Diageo plc 2023.


6
CAPITALISATION AND INDEBTEDNESS
The following table sets out on an IFRS basis the unaudited capitalisation and indebtedness and the unaudited cash and cash equivalents of Diageo as at 31 December 2022.
31 December 2022
£ million
Indebtedness
Short-term borrowings and bank overdrafts 2,305 
Long-term borrowings15,304 
Lease liabilities438 
Total indebtedness18,047 
Capitalisation
Share capital719 
Share premium1,351 
Capital redemption reserve3,224 
Hedging and exchange reserve(1,031)
Own shares(1,821)
Other retained earnings5,697 
Equity attributable to the equity shareholders of the parent company8,139 
Non-controlling interests1,727 
Total equity9,866 
Total capitalisation and indebtedness27,913 
Cash and cash equivalents2,766 

Notes
(1)At 31 December 2022, 2,483 million ordinary shares of 28101/108 pence each were issued, all of which were fully paid, including shares issued, shares issued and held in employee share trusts and those held as treasury shares. Diageo’s current return of capital programme, initially approved by the Board on 25 July 2019, seeks to return up to £4.5 billion to shareholders and is expected to be completed by 24 February 2023. Under the first three phases of the programme which ended on 31 January 2020, 11 February 2022 and 5 October 2022 respectively, Diageo repurchased shares with an aggregate value of approximately £3.86 billion. On 1 November 2022, the company announced the fourth and final phase of the programme with a value of up to £0.64 billion returned to shareholders, via share buybacks, to be completed no later than 24 February 2023. At 31 December 2022, £316 million had been completed as part of the fourth phase. In the six months ended 31 December 2022, the company purchased 14.8 million ordinary shares at a cost of £0.55 billion (including transaction costs of £7 million) (2021 – £538 million including transaction costs of £3 million). All shares purchased under the share buyback programme were cancelled. A financial liability of £215 million was established at 31 December 2022 (2021 – £184 million) representing the 5.9 million shares (2021 – 4.7 million shares) that were expected to be purchased by 26 January 2023.
(2)There have been no material changes to performance guarantees or indemnities in respect of liabilities of third parties from those reported in Diageo’s Annual Report on Form 20-F for the year ended 30 June 2022.
(3)At 31 December 2022, none of the group’s net borrowings were secured on assets of the group.
(4)An interim dividend of 30.83 pence per share will be paid to holders of ordinary shares and ADRs on the register as of 25 January 2023.
(5)Other than those disclosed above, there has been no material change since 31 December 2022 in the group’s net borrowings, performance guarantees, indemnities and capitalisation.

7
BUSINESS REVIEW

INFORMATION PRESENTED

Diageo is one of the world’s leading premium drinks businesses and operates on an international scale selling all types of beverage alcohol. It is one of a small number of premium drinks companies that operate globally across spirits and beer.
The following discussion is based on Diageo’s results for the six months ended 31 December 2022 compared with the six months ended 31 December 2021.

This section contains certain non-GAAP measures, including organic movements, growth on a constant basis, organic growth excluding Travel Retail and Guinness, free cash flow, return on average invested capital, adjusted net borrowings to adjusted EBITDA and tax rate before exceptional items. These non-GAAP measures should be viewed as complementary to, and not replacements for, the comparable GAAP measures and reported movements therein. Organic movements and organic operating profit presented in this section are before exceptional items. Share, unless otherwise stated, refers to value share. See ‘Definitions and reconciliations of non-GAAP measures to GAAP measures’ for an explanation of non-GAAP measures on pages 42 to 52.

8
OPERATING RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2022 COMPARED WITH THE SIX MONTHS ENDED 31 DECEMBER 2021
Financial highlights
Delivered strong net sales growth, with growth across all regions
–Reported net sales of £9.4 billion, increased 18.4%, primarily reflecting strong organic net sales growth as well as favourable impacts from foreign exchange, mainly due to the strengthening of the US dollar.
–Organic net sales grew 9.4%, with growth in all regions. Price/mix of 7.6 percentage points reflects a high single-digit price contribution to net sales growth, premiumisation and organic volume growth of 1.8%.
–Growth was enabled by our diversified footprint, advantaged portfolio, strong brands and underpinned by favourable industry trends of premiumisation.
Resilient operating margin despite increased cost inflation
–Reported operating profit grew 15.2% to £3.2 billion. Reported operating margin declined by 92bps, with organic margin expansion more than offset by exceptional operating items and foreign exchange.
–Organic operating profit grew 9.7% and organic operating margin expanded by 9bps, driven by leverage on operating cost reflecting disciplined cost management, despite inflation.
–Price increases and supply productivity savings more than offset the impact of absolute cost inflation on gross margin.
Advantaged portfolio and premiumisation drove market share growth
–Growth was delivered across most categories, primarily scotch, tequila and beer.
–Premium-plus brands contributed 57% of reported net sales and drove 65% of organic net sales growth.
–Total trade market share grew or held in over 75%(1) of total net sales value in measured markets.
Continued optimisation of portfolio through acquisitions and disposals
–Acquired Mr Black, a leading Australian premium-priced coffee liqueur, and Balcones Distilling, a Texas craft distiller and one of the leading producers of American single malt whisky.
–Announced an agreement to acquire Don Papa rum, a super-premium, dark rum from the Philippines.
–Agreed to dispose of Guinness Cameroon S.A., disposed of Archers and completed the disposal and franchising of a portfolio of brands in India.
Invested to sustain long-term growth
–Increased organic marketing investment by 6.8%, reflecting strong, consistent investment in our brands.
–Invested £0.4 billion of capex in supply capacity, sustainability, digital capabilities and consumer experiences.
Cash flow generation
–Net cash flow from operating activities declined by £0.7 billion to £1.2 billion.
–Free cash flow of £0.8 billion, declined £0.8 billion. Operating profit and positive foreign exchange impact were offset by higher year-on-year working capital outflow primarily due to lapping a larger increase in creditors, phasing of spend and higher tax payments.
–Strong balance sheet, with leverage ratio(2) of 2.5x as at 31 December 2022, at the lower end of our target range, as a result of strong profit performance.
Continued progress in delivering Society 2030 ESG goals and doing business the right way
–Launched ‘Drops of Advice’, a new global festive responsible drinking campaign.
–Announced plans for a hydrogen powered furnace in the UK to create the world’s first net zero glass bottles to be produced at scale.
–Diageo North America was named in the Top 10 Inclusive Companies for 2022.
–Included in Dow Jones World Sustainability Index for the fifth consecutive year.
Continued creation of long-term shareholder value
–Increased basic eps by 19.7% to 100.9 pence and pre-exceptional eps by 15.2% to 98.6 pence.
–Increased declared interim dividend by 5% to 30.83 pence per share.
–Total shareholder return was 5%, in the top half of our peer group.
–Expect to complete remaining £0.3 billion of current programme to return up to £4.5 billion of capital to shareholders in February 2023 and return up to an additional £0.5 billion in fiscal 23.

See page 42 for explanation and reconciliation of non-GAAP measures, including organic net sales, organic marketing investment, organic operating profit, free cash flow, eps before exceptionals, ROIC, adjusted net debt, adjusted EBITDA and tax rate before exceptional items.
(1)    Internal estimates incorporating Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other third-party providers. All analysis of data has been applied with a tolerance of +/- 3 bps. Percentages represent percent of markets by total Diageo net sales contribution that have held or gained total trade share fiscal year to date. Measured markets indicate a market where we have purchased any market share data. Market share data may include beer, wine, spirits or other elements. Measured market net sales value sums to 86% of total Diageo net sales value in the first half of fiscal 23.
(2)    Ratio of adjusted net borrowings to adjusted EBITDA. For further details see page 50.





9
RECENT TRENDS

Ivan Menezes, Chief Executive of Diageo, commenting on the six months ended 31 December 2022 said:

We have made a strong start to fiscal 23. Organic net sales grew 9%, with growth across all regions, organic volume grew 2%, and organic operating profit grew 10%. In a challenging cost environment, our organic operating margin increased 9 basis points whilst we also continued to invest for the future. Today, Diageo is 36%(1) larger than it was prior to Covid-19, reflecting the strength of our diversified footprint and advantaged portfolio. I want to thank my nearly 28,000 colleagues for their tireless work, focus and agility which has helped us to achieve these results.
Sales growth was supported by our continued focus on premiumising our portfolio, bolstered by strong global premiumisation trends, with our super-premium-plus brands growing organic net sales 12%. As category growth trends continue to normalise following Covid-19, winning quality market share remains a key focus. I am pleased to say that we gained or held share in 75%(2) of total net sales value in our measured markets, demonstrating our strong commercial execution.
We have delivered targeted price increases across all regions, enabled by our expertise in revenue growth management and supported by strong consumer demand for our brands. This, combined with our culture of everyday efficiency, has allowed us to increase our investments. We are investing in world-class brand building, digital and data capabilities and our ambitious 2030 sustainability plan to create a stronger and more resilient business for the long-term.
As we look to the second half of fiscal 23, whilst the operating environment remains challenging, I remain confident in the resilience of our business and our ability to navigate volatility. We believe we are well-positioned to deliver our medium-term guidance of consistent organic net sales growth in the range of 5% to 7% and sustainable organic operating profit growth in the range of 6% to 9% for fiscal 23 to fiscal 25.



























(1)    Global H1 F23 net sales value 36% ahead of H1 F19 on a constant basis, see page 43 for explanation.
(2)    Internal estimates incorporating Nielsen, Association of Canadian Distillers, Dichter & Neira, Frontline, INTAGE, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, IPSOS and other third-party providers. All analysis of data has been applied with a tolerance of +/- 3 bps. Percentages represent percent of markets by total Diageo net sales contribution that have held or gained total trade share fiscal year to date. Measured markets indicate a market where we have purchased any market share data. Market share data may include beer, wine, spirits or other elements. Measured market net sales value sums to 86% of total Diageo net sales value in the first half of fiscal 23.
10
Summary financial informationF23 H1F22 H1Organic growth
%		Reported growth
%
VolumeEUm136.8 140.2 2 (2)
Net sales£ million9,420 7,957 9 18 
Marketing£ million1,577 1,351 7 17 
Operating profit before exceptional items£ million3,194 2,743 10 16 
Exceptional operating items(1)
£ million(33)— 
Operating profit£ million3,161 2,743 15 
Share of associate and joint venture profit after tax£ million172 190 (9)
Non-operating exceptional items(1)
£ million16 (31)
Net finance charges£ million(292)(180)
Exceptional taxation credit/(charge)(1)
£ million70 — 
Tax rate including exceptional items%21.3 23.3 (9)
Tax rate before exceptional items%23.4 23.0 2 
Profit attributable to parent company’s shareholders£ million2,295 1,965 17 
Basic earnings per sharepence100.9 84.3 20 
Basic earnings per share before exceptional itemspence98.6 85.6 15 
Interim dividendpence30.83 29.36 5 
(1)    For further details on exceptional items see pages 17 and F-11-13.

Fiscal 23 outlook

Organic net sales
The strong organic net sales growth delivered in the first half of fiscal 23 moderated compared to double-digit fiscal 22 levels, as expected. While we expect the operating environment to continue to be challenging, we are confident in the resilience of our business and our ability to navigate continued cost inflation and global geopolitical and macroeconomic uncertainty.
In North America, organic net sales grew 3% in the first half of fiscal 23. We expect organic net sales growth to continue to normalise through the second half of fiscal 23, compared to the double-digit growth in the prior period. In Europe, we expect organic net sales growth to moderate in the second half of fiscal 23 as we lap on-trade re-opening recovery. In Asia Pacific, Latin America and Caribbean and Africa, we expect continued growth through the second half of fiscal 23, albeit at a moderated pace relative to the strong growth in fiscal 22.
We believe in the fundamental strength of our business and expect our advantaged portfolio to benefit from spirits continuing to gain share of total beverage alcohol (TBA), premiumisation, strategic pricing actions and continued strong investment in marketing and innovation. Our portfolio is well-positioned across geographies, categories and price points. We will use our deep understanding of consumers to quickly adapt to changes in trends and behaviours, while investing strongly in marketing and innovation, and leveraging our revenue growth management capabilities, including strategic pricing actions.

Organic operating margin
In a challenging inflationary environment, we will continue to focus on revenue growth management, including strategic pricing actions. For the second half of fiscal 23, we expect marketing investment to grow ahead of sales growth. We continue to expect organic operating margin to benefit from premiumisation trends, our culture of everyday efficiency and operating leverage, while we continue to invest strongly in marketing.

Exchange
We are not providing specific guidance in relation to foreign exchange for fiscal 23. However, using spot exchange rates of £1=$1.20 and £1=€1.13 as at 31 December 2022, where sterling has depreciated compared to the actual exchange rates experienced in fiscal 22, and applying them to last year's P&L profile for net sales and operating profit, we would see positive exchange impacts of approximately £950 million and £300 million respectively.

Taxation
We expect the tax rate before exceptional items to continue to be in the range of 22.0% to 24.0% in fiscal 23.

Effective interest rate
We expect the effective interest rate to be around 4% in fiscal 23.



11
Capital expenditure and free cash flow
In fiscal 23, we continue to expect capex for the full year to be in the range of £1.0-1.2 billion. In the second half of fiscal 23, we expect to deliver stronger free cash flow than the first half, as we lap more normalised working capital movements in the second half of fiscal 22.

Notes to the business and financial review
Unless otherwise stated:
–movements in results are for the six months ended 31 December 2022 compared to the six months ended 31 December 2021;
–commentary below refers to organic movements unless stated as reported;
–volume is in millions of equivalent units (EUm);
–net sales are sales after deducting excise duties;
–percentage movements are organic movements unless stated as reported;
–growth is organic net sales value movement unless states otherwise; and
–share refers to value share, except for India which is volume share.

See page 42 for explanation of the calculation and use of non-GAAP measures.


12
Key performance indicators
Net sales (£ million)
Reported net sales grew 18.4%
Organic net sales grew 9.4%
Reported net sales grew18.4%, driven by strong organic growth and a positive favourable foreign exchange impact.

Organic net sales growth of 9.4% reflects organic volume growth of 1.8% and 7.6 percentage points of positive price/mix. All regions delivered growth, despite lapping strong double-digit growth. Price/mix was primarily driven by price increases across all regions.
Organic movement     
deo-20221231_g1.jpg                                                                       
(i
deo-20221231_g2.jpg

(1)    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.
(2)    See pages F-14 and 43-46 for details of hyperinflation adjustment.

Operating profit (£ million)
Reported operating profit grew 15.2%
Organic operating profit grew 9.7%
Reported operating profit grew 15.2%, mainly driven by growth in organic operating profit and positive impact from exchange rate movements. This was partially offset by the negative impact of exceptional operating items, primarily driven by the supply chain agility programme and the negative impact of acquisitions and disposals.

Organic operating profit grew 9.7%, ahead of organic net sales growth, driven by growth across all regions except North America.
deo-20221231_g3.jpg
(1)    For further details on exceptional operating items see pages 17 and F-11-13.
(2)    Fair value remeasurements. For further details see page 18.
(3)    See pages F-14 and 43-46 for details of hyperinflation adjustment.



13
Operating margin (%)
Reported operating margin declined by 92bps
Organic operating margin expanded by 9bps
Reported operating margin declined by 92bps, with organic operating margin expansion more than offset by exceptional operating items, negative impact of foreign exchange, acquisitions and disposals and other items.

Organic operating margin expanded by 9bps, reflecting disciplined cost management despite inflation. Strong operating margin expansion in Asia Pacific and Europe was partially offset by a decline in North America.

Organic gross margin declined by 79bps, primarily driven by cost pressure. Price increases and supply productivity savings more than offset the absolute impact of cost inflation.
Organic movement
9 bps
deo-20221231_g1.jpg
deo-20221231_g4.jpg
(1)    For further details on exceptional operating items see pages 17 and F-11-13.
(2)    Fair value remeasurements and hyperinflation adjustment. For further details on fair value remeasurements see page 18. See pages F-14 and 43-46 for details of hyperinflation adjustment.

Basic earnings per share (pence)
Basic eps increased 19.7% from 84.3 pence to 100.9 pence
Basic eps before exceptional items(1) increased 15.2% from 85.6 pence to 98.6 pence
Basic eps increased 16.6 pence, mainly driven by organic operating profit growth and favourable foreign exchange impact, partially offset by higher tax and increased finance charges.
Basic eps before exceptional items increased 13 pence.

(ideo-20221231_g5.jpg

(1)    See page 42 for explanation of the calculation and use of non-GAAP measures.
(2)    For further details on exceptional items see pages 17 and F-11-13.
(3)    Includes finance charges net of tax.
(4)    Excludes finance charges related to acquisitions, disposals, share buybacks and includes finance charges related to hyperinflation adjustments (F23 H1 – £(6) million; F22 H1 – £1 million).
(5)    Excludes tax related to acquisitions, disposals and share buybacks.
(6)    Fair value remeasurements. For further details see page 18.
(7)    Operating profit hyperinflation adjustment movement was £20 million compared to the first half of fiscal 22 (F23 H1 – £20 million; F22 H1 – £nil).
14

Net cash from operating activities and free cash flow (£ million)
Generated £1,248 million net cash from operating activities(1) and £817 million free cash flow
Net cash from operating activities was £1,248 million, a decrease of £699 million compared to the first half of fiscal 22. Free cash flow decreased by £758 million to £817 million.

Free cash flow decreased as strong growth in operating profit and a favourable foreign exchange impact was more than offset by a higher year-on-year working capital outflow, higher cash tax and interest paid, and increased capital investment.
The higher year-on-year working capital outflow was due to the normalisation of creditors relative to the first half of fiscal 22, as our growth rate began to moderate in the first half of fiscal 23. Creditors increased significantly in the first half of fiscal 22 due to accelerated growth as markets recovered from the impact of Covid-19. Working capital has also been impacted by the phasing of spend in the half, and the increase was also driven by higher investment in inventory, including maturing stock, to deliver supply chain resilience and to support future growth of the business. This higher investment was also impacted by inflation.
The additional cash tax payments were the result of increased profit impacting tax instalments, higher balancing payments and adverse FX movements on our tax liabilities. Higher interest cost reflects the higher interest rate environment globally.
deo-20221231_g6.jpg
(1)    Net cash from operating activities excludes net capex (F23 H1 – £(429) million; F22 H1 – £(375) million) and movements in loans and other investments.
(2)    Exchange on operating profit before exceptional items.
(3)    Operating profit excludes exchange, depreciation and amortisation, post employment charges of £(9) million and other non-cash items.
(4)    Working capital movement includes maturing inventory.
(5)    Other items include dividends received from associates and joint ventures, movements in loans and other investments and post employment payments.


Return on invested capital (%)
The return on closing invested capital of 24.4% for the six months ended 31 December 2022, calculated as profit for the period divided by net assets as of 31 December 2022, increased by 202bps mainly driven by higher organic operating profit growth.

Return on average invested capital (%)(1)
ROIC increased 37bps
ROIC increased 37bps, mainly driven by organic operating profit growth, partially offset by higher tax, increased capex and maturing stock investment.
deo-20221231_g7.jpg
(1)    ROIC calculation excludes exceptional operating items from operating profit. For further details on ROIC see page 49.

15
Additional financial information
Summary income statement
31 December 2021Exchange
(a)		Acquisitions and disposals
(b)
Organic movement(1)
Fair value remeasurement
(d)
Hyperinflation(1)
31 December 2022
£ million£ million£ million£ million£ million£ million£ million
Sales11,753 737 (214)830 — 113 13,219 
Excise duties(3,796)(68)181 (88)— (28)(3,799)
Net sales7,957 669 (33)742 — 85 9,420 
Cost of sales(2,955)(273)23 (341)(3)(49)(3,598)
Gross profit5,002 396 (10)401 (3)36 5,822 
Marketing(1,351)(116)(7)(93)(1)(9)(1,577)
Other operating items(908)(79)(2)(47)(8)(7)(1,051)
Operating profit before exceptional items2,743 201 (19)261 (12)20 3,194 
Exceptional operating items (c)— (33)
Operating profit2,743 3,161 
Non-operating items (c)(31)16 
Net finance charges(180)(292)
Share of after tax results of associates and joint ventures190 172 
Profit before taxation2,722 3,057 
Taxation (e)(634)(650)
Profit for the period2,088 2,407 
(1)     For the definition of organic movement and hyperinflation see pages 42-43.

(a) Exchange
The impact of movements in exchange rates on reported figures for net sales and operating profit was principally in respect of the translation exchange impact of the weakening of sterling against the US dollar, Brazilian real and the Mexican peso, partially offset by strengthening of sterling against the Turkish lira.

The effect of movements in exchange rates and other movements on profit before exceptional items and taxation for the six months ended 31 December 2022 is set out in the table below.
Gains/(losses)
£ million
Translation impact201 
Transaction impact— 
Operating profit before exceptional items201 
Net finance charges – translation impact(13)
Net finance charges – transaction impact1 
Net finance charges(12)
Associates – translation impact1 
Profit before exceptional items and taxation190 
Six months ended 31 December 2022Six months ended 31 December 2021
Exchange rates
Translation £1 =$1.18 $1.36 
Transaction £1 =$1.29 $1.30 
Translation £1 =€1.16 €1.17 
Transaction £1 =€1.15 €1.15 
16
(b) Acquisitions and disposals
The acquisitions and disposals movement was primarily attributable to the disposal of the USL Popular brands in the six months ended 31 December 2022.

See pages 17 and F - 18 for further details.

(c) Exceptional items

Exceptional operating items in the six months ended 31 December 2022 were £33 million loss (2021 – £nil).

In the six months ended 31 December 2022, an exceptional charge of £47 million was accounted for in respect of the supply chain agility programme announced in July 2022. With this five-year spanning programme, Diageo expects to strengthen its supply chain, improve its resilience and agility, drive efficiencies, deliver additional productivity savings and make its supply operations more sustainable. Total implementation cost of the programme is expected to be up to £500 million over the five-year period, which will comprise non‐cash items and one‐off expenses, the majority of which are expected to be recognised as exceptional operating items. No restructuring cash expenditure was incurred in the period.

In the six months ended 31 December 2022, Diageo released unutilised provisions of £14 million from the £50 million exceptional charge taken in the year ended 30 June 2022 in respect of winding down its operations in Russia.

Non-operating items in the six months ended 31 December 2022 were £16 million gain (2021 – £31 million loss).

On 8 September 2022, Diageo announced the sale of its Archers brand. The transaction resulted in an exceptional gain of £20 million.

On 30 September 2022, Diageo announced the completion of the sale of the Popular brands of its USL business. The aggregate consideration for the disposal was £87 million, the disposed net asset included £31 million net working capital and £22 million brand, and £16 million goodwill was derecognised. The transaction resulted in an exceptional gain of £4 million and the respective share of non-controlling interest amounted to £9 million. Popular brands contributed £225 million to sales and £5 million to operating profit including transaction costs of £4 million in the six months ended 31 December 2022.

In the six months ended 31 December 2022, ZAR 46 million (£2 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries, the full amount of which represented a non-operating gain (2021 – a gain of £2 million).

On 14 July 2022, Diageo announced the agreement to sell Guinness Cameroon S.A., its brewery in Cameroon, to Castel Group. As regulatory clearance has been received, completion of the sale is highly probable and is expected in the second half of fiscal 23. As a result, the assets and liabilities of the brewing business of Guinness Cameroon S.A. were classified as held for sale. In the six months ended 31 December 2022, transaction costs relating to the prospective sale amounted to £2 million.

On 29 September 2022, the group acquired the part of the entire issued share capital of Mr Black Spirits Pty Ltd, owner of the Mr Black Australian premium cold brew coffee liqueur, that it did not already own. As a result of Mr Black becoming a subsidiary of the group, in the six months ended 31 December 2022, a loss of £8 million arose, being the difference between the book value of the associate prior to the transaction and its fair value plus transaction costs.

In the six months ended 31 December 2021, a loss of ETB 2,254 million (£33 million) was recognised as a non-operating item attributable to the sale of Meta Abo Brewery Share Company in Ethiopia.

Exceptional tax credits of £70 million (2021 – £nil) in the six months ended 31 December 2022 include tax credits of £57 million in respect of the deductibility of fees paid to Diageo plc for guaranteeing externally issued debt of US group entities.

See page 43 for the definition of exceptional items.







17
(d) Fair value remeasurement
The adjustment to cost of sales reflects the elimination of fair value changes for biological assets in respect of growing agave plants of £nil for the six months ended 31 December 2022 and £3 million gain for the six months ended 31 December 2021. The adjustments to marketing and other operating expenses were the elimination of fair value changes to contingent consideration liabilities and earn out arrangements in respect of prior year acquisitions of £13 million gain for the six months ended 31 December 2022 and £22 million gain for the six months ended 31 December 2021.

(e) Taxation
The reported tax rate for the six months ended 31 December 2022 was 21.3% compared with 23.3% for the six months ended 31 December 2021.
For the six months ended 31 December 2022, income tax expense was recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period in line with the relevant accounting standard.
Included in the tax charge of £650 million in the six months ended 31 December 2022 is an exceptional tax credit of £70 million, which includes a tax credit of £57 million in respect of the deductibility of fees paid to Diageo plc for guaranteeing externally issued debt of US group entities. Following engagement with the tax authorities, guarantee fees for the periods ended 30 June 2012 to 30 June 2022 will be fully deductible.
The tax rate before exceptional items for the six months ended 31 December 2022 was 23.4% compared with 23.0% for the six months ended 31 December 2021.
We expect the tax rate before exceptional items for the year ending 30 June 2023 to be in the range of 22%-24%.
A reconciliation of the forward-looking non-GAAP financial measure ‘tax rate before exceptional items’ to its most directly comparable GAAP financial measure, ‘tax rate after exceptional items’, is not provided because it is not possible to predict, without unreasonable effort, with reasonable certainty, exceptional items which by their nature are material or not in the normal course of business. These exceptional items are uncertain, depend on various factors, and could be material to our consolidated results.

(f) Dividend

The group aims to increase the dividend each year. The decision in respect of the dividend is made with reference to the dividend cover as well as current performance trends, including sales and profit after tax together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) within the range of 1.8-2.2 times. For the year ended 30 June 2022, dividend cover was 2.0 times. The group will keep future returns of capital, including dividends, under review through the year ending 30 June 2023 to ensure Diageo's capital is allocated in the best way to maximise value for the business and stakeholders.

An interim dividend of 30.83 pence per share will be paid to holders of ordinary shares and US ADRs on register as of 3 March 2023. The ex-dividend date is 2 March 2023. This represents an increase of 5% on last year’s interim dividend. The interim dividend will be paid to holders of ordinary shares on 13 April 2023 and to holders of US ADRs on 18 April 2023. A dividend reinvestment plan is available to holders of ordinary shares in respect of the interim dividend and the plan notice date is 17 March 2023.


18
(g) Return of capital
Diageo’s current return of capital programme, initially approved by the Board on 25 July 2019, seeks to return up to £4.5 billion to shareholders and is expected to be completed by 24 February 2023. Under the first three phases of the programme which ended on 31 January 2020, 11 February 2022 and 5 October 2022 respectively, Diageo repurchased shares with an aggregate value of approximately £3.86 billion. On 1 November 2022, the company announced the fourth and final phase of the programme with a value of up to £0.64 billion returned to shareholders, via share buybacks, to be completed no later than 24 February 2023. At 31 December 2022, £316 million had been completed as part of the fourth phase.
On 25 January 2023, Diageo received Board approval to undertake an additional share buyback programme returning up to £0.5 billion to shareholders, to be completed before the end of the financial year; precise timing is subject to future announcement.

In the six months ended 31 December 2022, the company purchased 14.8 million ordinary shares at a cost of £554 million (including transaction costs of £7 million) (2021 – £538 million including transaction costs of £3 million). All shares purchased under the share buyback programme were cancelled. A financial liability of £215 million was established at 31 December 2022 (2021 – £184 million) representing the 5.9 million shares (2021 – 4.7 million shares) that were expected to be purchased by 26 January 2023.
19
Movements in net borrowings
20222021
£ million£ million
Net borrowings at 30 June(14,137)(12,109)
Free cash flow (a)817 1,575 
Acquisitions (b)(113)(110)
Investment in associates (b)(31)(24)
Sale of businesses and brands (c)99 2 
Share buyback programme (d)(554)(538)
Net sale of own shares for share schemes (e)9 42 
Purchase of treasury shares in respect of subsidiaries— (13)
Dividend paid to non-controlling interests(79)(51)
Net movements in bonds (f)1,534 (769)
Net movements in other borrowings (g)(28)38 
Equity dividend paid(1,065)(1,040)
Net increase/(decrease) in cash and cash equivalents589 (888)
Net (increase)/decrease in bonds and other borrowings(1,508)729 
Exchange differences (h)(50)(31)
Other non-cash items (i)(63)(32)
Net borrowings at 31 December(15,169)(12,331)

(a) See page 15 for the analysis of free cash flow.

(b) Diageo completed two acquisitions in the six months ended 31 December 2022: (i) on 29 September 2022, the acquisition of the remaining issued share capital of Mr Black Spirits Pty Ltd, owner of Mr Black, the Australian premium cold brew coffee liqueur, that it did not already own; and (ii) on 2 November 2022, the acquisition of the entire issued share capital of Balcones Distilling, a Texas craft distiller and one of the leading producers of American single malt whisky in the United States.
In the six months ended 31 December 2022, Diageo paid £18 million in respect of prior year acquisitions.

In the six months ended 31 December 2021,Diageo paid £110 million in relation to past acquisitions including the final earn-out payment on 17 September 2021 in respect of the Casamigos acquisition amounting to $113 million (£83 million).
(c) In the six months ended 31 December 2022, sale of businesses and brands represents the disposal of the USL Popular brands and the Archers brand net of transaction costs.
(d) See page 19 for details of Diageo's return of capital programmes.
(e) Net sale of own shares comprised receipts from employees on the exercise of share options of £28 million (2021 – £56 million) less purchase of own shares for the future settlement of obligations under the employee share option schemes of £19 million (2021 – £14 million).
(f) In the six months ended 31 December 2022, the group issued bonds of $2,000 million (£1,788 million – net of discount and fee) and repaid bonds of $300 million (£254 million).
In the six months ended 31 December 2021, the group repaid bonds of €900 million (£769 million).
(g) In the six months ended 31 December 2022, the net movements in other borrowings principally arose from cash movement of foreign currency swaps and forwards and repayment of lease liabilities offset by the increase in bank loans.
In the six months ended 31 December 2021, the net movements in other borrowings principally arose from cash movement of foreign exchange swaps and forwards partially offset by the repayment of lease liabilities.
(h) In the six months ended 31 December 2022, exchange losses arising on net borrowings of £50 million were primarily driven by adverse exchange movements on euro denominated borrowings and unfavourable exchange movements on cash and cash equivalents partially offset by favourable movements on foreign currency swaps and forwards.
20
In the six months ended 31 December 2021, the exchange differences arising on net borrowings of £31 million were primarily in respect of adverse exchange movements on US dollar denominated borrowings, partially offset by favourable movement on euro denominated borrowings, cash and cash equivalents, foreign currency swaps and forwards.
(i) In the six months ended 31 December 2022, other non-cash items were principally in respect of the reclassification of cash and cash equivalents in Guinness Cameroon S.A. to assets and liabilities held for sale.
In the six months ended 31 December 2021, other non-cash items are principally in respect of additional leases entered into during the period.

Movements in equity
20222021
£ million£ million
Equity at 30 June9,514 8,431 
Profit for the period2,407 2,088 
Exchange adjustments (a)(92)29 
Remeasurement of post employment benefit plans net of taxation(382)453 
Hyperinflation adjustments net of taxation (b)86 — 
Associates' transactions with non-controlling interests(12)— 
Dividend to non-controlling interests(63)(26)
Equity dividend paid(1,066)(1,040)
Share buyback programme (c)(652)(631)
Other reserve movements126 27 
Equity at 31 December9,866 9,331 
(a) Exchange movements in the six months ended 31 December 2022 primarily arose from exchange loss driven by the euro, the US dollar and the Mexican peso, partially offset by gains in Indian rupee and Turkish lira. Exchange movements in the six months ended 31 December 2021 primarily arose from exchange gains driven by the US dollar and the Indian rupee partially offset by losses in Turkish lira.
(b) See page 43 for details of hyperinflation adjustments.
(c) See page 19 for details of Diageo's return of capital programmes.
Post employment benefit plans
The net surplus of the group’s post employment benefit plans decreased by £472 million from £1,151 million at 30 June 2022 to £679 million at 31 December 2022. The decrease in net surplus was predominantly attributable to the unfavourable actual change in the market value of assets held by the post employment benefit plans in the UK and Ireland, that was partially offset by the favourable change in the discount rate assumptions in the UK and US due to the increase in returns from ‘AA’ rated corporate bonds used to calculate the discount rates on the liabilities of the post employment benefit plans (UK from 3.8% to 4.8%; US from 4.4% to 4.9%).
The net operating profit charge before exceptional items decreased by £9 million from £49 million for the six months ended 31 December 2021 to £40 million for the six months ended 31 December 2022.

Following a remeasurement of the Diageo Lifestyle Plan, Diageo made a £16 million one-off deficit contribution to satisfy minimum funding requirements.

Total cash contributions by the group to all post employment benefit plans in the year ending 30 June 2023 are estimated to be approximately £90 million.

21
Analysis by reporting segments
The reported and organic movements for volume, net sales, marketing spend, operating profit and operating profit before exceptional items by reporting segments for the six months ended 31 December 2022 were as follows:
VolumeNet salesMarketingOperating profitOperating profit before exceptional items
Reported growth by region%EUm%£ million%£ million%£ million%£ million
North America(4)(1.0)19 553 18 101 8 98 10 124 
Europe(1)(0.2)13 227 7 21 15 95 13 81 
Asia Pacific(4)(2.0)20 306 15 39 25 115 30 136 
Latin America and Caribbean7 1.0 34 281 42 52 41 138 41 138 
Africa(6)(1.2)9 75 10 10 2 4 2 4 
Corporate— — 91 21 50 3 (26)(32)(26)(32)
Diageo(2)(3.4)18 1,463 17 226 15418 16 451 

VolumeNet salesMarketingOperating profit before exceptional items
Organic growth by region%EUm%£ million%£ million%£ million
North America(4)(1.1)3 88 2 13 (2)(26)
Europe— (0.1)10 164 3 9 19 106 
Asia Pacific10 3.6 17 250 9 24 27 119 
Latin America and Caribbean6 0.9 20 167 29 37 20 69 
Africa(5)(1.0)6 52 8 8 12 23 
Corporate— — 91 21 33 2 (23)(30)
Diageo2 2.3 9 742 7 93 10 261 

Net salesFirst half of fiscal 19 to first half of fiscal 23
Reported growth %(i)		First half of fiscal 19 to first half of fiscal 23
Growth on a constant basis %(i)
North America49 38 
Europe21 27 
Asia Pacific31 32 
Latin America and Caribbean64 64 
Africa15 32 
Corporate57 57 
Diageo36 36 
(1)    For further details on first half of fiscal 19 to first half of fiscal 23 growth on a constant basis see pages 43-46.

See page 42 for explanation and reconciliation of non-GAAP measures.
22
North America
•Reported net sales grew 19%, primarily driven by a favourable impact from foreign exchange, mainly due to the strengthening of the US dollar, and organic growth.
•Organic net sales grew 3%, lapping strong double-digit growth in the first half of fiscal 22, reflecting growth in all markets and holding share of TBA. Strong price/mix growth more than offset an organic volume decline.
•Growth was primarily driven by tequila, which grew 24%, as well as double-digit growth in US whiskey and spirit-based ready to drink. This more than offset the declines in vodka, Canadian whisky, and scotch.
•US Spirits net sales grew 2%, lapping strong double-digit growth in the first half of fiscal 22. Depletions value growth was ahead of shipments by approximately one percentage point with some variations across certain brands.
•Diageo Beer Company USA (DBC USA) net sales grew 3%, reflecting 14% growth in Guinness, partially offset by a decline in flavoured malt beverages.
•Organic operating margin declined by 206bps, primarily driven by cost inflation and an adverse category mix. Strategic price increases, productivity savings and lower discretionary expenditures more than offset the absolute impact of cost inflation, and mostly offset the adverse impact on gross margin.
•Marketing investment grew 2% ahead of prior year as we continue to support growth across key categories, primarily tequila and Canadian whisky.
F22 H1
Exchange
Acquisitions
and
disposals		Organic movement
Other(1)
F23 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
£ million
%
Net sales2,964 452 13 88 — 3,517 19 
Marketing548 80 7 13 1 649 18 
Operating profit before exceptional items1,295 146 (6)(26)10 1,419 10 
Exceptional operating items(2)
— (26)
Operating profit1,295 1,393 8
Markets:
Organic
volume
movement		Reported
volume
movement		Organic
net sales
movement		Reported
net sales
movement
Markets and categories:%%%%
North America(4)(4)3 19 
US Spirits(3)
(6)(5)2 18 
DBC USA(4)
(1)(1)3 19 
Canada(1)— 7 17 
Spirits(4)(4)2 17 
Beer(1)(1)3 18 
Ready to drink10 10 18 34 
23
Organic
volume
movement(6)
Organic
net sales
movement		Reported
net sales
movement
Global giants, local stars and reserve(5):
%%%
Crown Royal(10)(8)6 
Don Julio5 20 38 
Casamigos16 27 46 
Johnnie Walker(12)(7)6 
Smirnoff1 6 21 
Captain Morgan(3)1 15 
Baileys(10)(5)9 
Ketel One(7)
(12)(14)(1)
Guinness9 15 31 
Bulleit whiskey(8)
12 19 37 
Buchanan's(20)(12)1 
(1)    Fair value remeasurements. For further details see page 18.
(2)    For further details on exceptional operating items see pages 17 and F-11.
(3)    Reported volume movement has been impacted by acquisitions and / or disposals. For further details see pages 44-47.
(4)    Certain spirits-based ready to drink products in certain states are distributed through DBC USA and those net sales are captured within DBC USA.
(5)    Spirits brands excluding ready to drink and non-alcoholic variants.
(6)    Organic equals reported volume movement.
(7)    Ketel One includes Ketel One vodka and Ketel One Botanical.
(8)    Bulleit whiskey excludes Bulleit Crafted Cocktails.

North America contributedNorth America organic net sales grew
37% of Diageo reported net sales in first half of fiscal 233% in first half of fiscal 23
deo-20221231_g8.jpg deo-20221231_g9.jpg



24
Market highlights - US Spirits

•In the first half of fiscal 22, the recovery in the on-trade channel, resilient consumer demand in the off-trade channel and the partial easing of supply chain constraints on certain products, resulted in the replenishment of stock levels by distributors and retailers towards normalised levels on several brands. The impact of lapping this replenishment resulted in depletions being significantly ahead of shipments across some brands in the first half of fiscal 23.
•Tequila net sales grew 24%, gaining share of the spirits market and the tequila category. Casamigos and Don Julio net sales grew 28% and 20% respectively, with shipments growing ahead of depletions, reflecting strong volume growth, as well as a benefit from price increases.
•Crown Royal net sales declined 9% while depletions value growth was positive, supported by our NFL partnership, the permanent launch of Crown Royal Peach and the return of Crown Royal Salted Caramel. Market share trajectory continues to improve as the brand recovers from supply constraints on flavoured variants in the first half of fiscal 22.
•Vodka net sales declined 15%. Smirnoff grew 7%, largely driven by growth of the core variant and flavoured variants, primarily Smirnoff Spicy Tamarind, which are recruiting younger and more diverse consumers. Ketel One net sales declined 14% primarily due to Ketel One Botanical. The Ketel One super-premium core variant held share of the vodka category and depletions value growth was positive. Cîroc net sales declined 46% as distributors adjusted inventory levels in response to lower demand as multicultural consumers were recruited into other spirits categories.
•Scotch net sales declined 5%. Johnnie Walker net sales declined 10%, however gained share of the scotch category driven by premium-plus variants Johnnie Walker Black Label and Johnnie Walker Blue Label, despite price increases and supply constraints on certain pack sizes. Buchanan’s net sales declined 12%, however depletions value growth was positive and the brand gained category share driven by consistent consumer penetration growth among multicultural consumers, underpinned by increased marketing investment. Single malts net sales grew 61%, primarily driven by Lagavulin.
•Captain Morgan net sales were flat, driven by growth in Captain Morgan Original Spiced, supported by successful sports platforms such as the NFL, which was offset by declines in other variants.
•Baileys net sales declined 4%, reflecting a decline in Baileys Original. Depletions value growth was ahead of net sales driven by increased media investment and successful holiday innovation.
•Bulleit whiskey net sales grew 19%, reflecting strong volume growth as the brand lapped glass supply constraints in the first half of fiscal 22, as well as a benefit from price increases. Bulleit whiskey gained share of both the spirits market and the US whiskey category, reflecting strong consumer demand and brand equity.
•Spirit-based ready to drink(1) net sales grew 12%, driven by the launch of Cîroc Vodka Spritz.





















(1)    Certain spirits-based ready to drink products in certain states are distributed through DBC USA and those net sales are captured within DBC USA.
25
Europe
•Reported net sales grew 13%, driven by organic growth and the hyperinflation adjustment(1) related to Turkey, partially offset by an unfavourable impact from foreign exchange.
•Organic net sales grew 10%, with growth across all markets except Eastern Europe, which was impacted by the winding down of our operations in Russia.
•Growth was mainly driven by price increases and continued premiumisation, while holding volume. The on-trade benefitted from continued recovery, particularly in Southern Europe which was supported by stronger tourism.
•Spirits net sales grew 9%, with growth across key categories, in particular scotch and vodka.
•Beer net sales grew 18%. Guinness volume grew 6%, and net sales increased 19% driven by price increases and further recovery in the on-trade in Ireland and Great Britain.
•Organic operating margin expanded by 286bps, driven by price increases, premiumisation and productivity savings. These benefits more than offset cost inflation.
•Marketing investment grew 3%, focused on key spirits brands.

F22 H1
Exchange
Acquisitions
and
disposals		Organic movement
Other(2)
Hyperinflation(1)
F23 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
£ million
£ million
%
Net sales1,752 (13)(9)164 — 85 1,979 13 
Marketing307 3 — 9 — 9 328 7 
Operating profit before exceptional items613 (15)(8)106 (22)20 694 13 
Exceptional operating items(3)
— 14 
Operating profit613 708 15
Markets:Organic
volume
movement		Reported
volume
movement		Organic
net sales
movement		Reported
net sales
movement
Markets and categories:%%%%
Europe(4)
— (1)10 13 
Great Britain(4)
(9)(8)1 1 
Northern Europe8 8 10 11 
Southern Europe(4)
7 2 14 13 
Ireland(4)
5 6 20 21 
Eastern Europe(4)
(18)(17)(3)6 
Turkey4 4 31 48 
Spirits(1)(1)9 13 
Beer5 5 18 19 
Ready to drink3 3 11 14 

26
Organic
volume
movement(6)
Organic
net sales
movement		Reported
net sales
movement
Global giants and local stars(5):
%%%
Guinness6 19 19 
Johnnie Walker12 23 26 
Baileys1 3 4 
Smirnoff2 16 18 
Captain Morgan(3)4 6 
Tanqueray(1)3 4 
Yenì Raki(4)6 36 
JεB(4)1 3 

(1)    See pages F-14 and 43-46 for details of hyperinflation adjustment.
(2)    Fair value remeasurements. For further details see page 18.
(3)    Exceptional items are in respect of Diageo’s decision, announced on 28 June 2022, to wind down its operations in Russia over the following six months. For further details on exceptional operating items see pages 17 and F-11.
(4)    Reported volume movement has been impacted by acquisitions and / or disposals. For further details see pages 44-47.
(5)    Spirits brands excluding ready to drink and non-alcoholic variants.
(6)    Organic equals reported volume movement, except for Smirnoff which had reported volume movement of 3%, Captain Morgan of (2)% and Tanqueray which was flat.

Europe contributedEurope organic net sales grew
21% of Diageo reported net sales in first half of fiscal 2310% in first half of fiscal 23
deo-20221231_g10.jpg deo-20221231_g11.jpg
Market highlights

•Great Britain net sales grew 1%, mostly driven by strong performance in Guinness, supported by price increases and further recovery of the on-trade. Spirits net sales declined, while gaining share, lapping strong double-digit growth in the first half of fiscal 22. Growth in vodka was more than offset by a decline in gin.
•Northern Europe net sales grew 10%. Growth was broad-based, led by scotch with strong market share growth.
•Southern Europe net sales grew 14%, reflecting continued recovery in the on-trade and tourism. Growth was mainly driven by strong performance in scotch followed by gin, vodka and rum.
•Ireland net sales grew 20%, reflecting continued recovery in the on-trade. Growth was mostly driven by price increases and volume growth in Guinness.
•Eastern Europe net sales declined 3%, due to the suspension of exports to and sales in Russia as announced in March 2022. In the rest of the market, spirits grew double-digit primarily driven by Johnnie Walker premium variants.
•Turkey net sales grew 31%, with volume growth of 4%. Net sales growth was driven by price increases in response to inflation and increased excise duties. Growth was driven by scotch, raki and vodka.



27
Asia Pacific

•Reported net sales grew 20%, primarily reflecting strong organic growth and a favourable impact from foreign exchange.
•Organic net sales grew 17%, with strong growth in most markets, notably South East Asia, Travel Retail Asia and Middle East and India.
•Spirits grew 20%, primarily driven by double-digit growth in scotch and IMFL whisky(1).
•Organic operating margin expanded by 258bps as the benefits from the continued recovery of Travel Retail, price increases, and marketing and operational efficiencies more than offset cost inflation.
•Marketing investment grew 9%, with focused investment in scotch in South East Asia, Greater China and India.
F22 H1
Exchange
Acquisitions
and
disposals		Organic movementF23 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales1,531 89 (33)250 1,837 20 
Marketing263 15 — 24 302 15 
Operating profit before exceptional items451 26 (9)119 587 30 
Exceptional operating items(2)
— (21)
Operating profit451 566 25 
Organic
volume
movement		Reported
volume
movement		Organic
net sales
movement		Reported
net sales
movement
Markets and categories:%%%%
Asia Pacific(3)
10 (4)17 20 
India(3)
7 (9)11 10 
Greater China2 2 2 9 
Australia(5)(5)3 9 
South East Asia44 44 51 56 
North Asia31 31 29 26 
Travel Retail Asia and Middle East88 88 126 124 
Spirits(3)
9 (5)20 22 
Beer15 15 21 27 
Ready to drink(1)(1)5 10 
Organic
volume
movement(5)
Organic
net sales
movement		Reported
net sales
movement
Global giants, local stars and reserve(4):
%%%
Johnnie Walker27 42 46 
Shui Jing Fang(6)
(5)(7)— 
McDowell's— 2 9 
The Singleton40 37 46 
Guinness13 22 27 
Smirnoff18 21 30 
Windsor56 55 56 
Baileys7 13 25 
(1)    Indian-Made Foreign Liquor (IMFL) whisky.
(2)    For further details on exceptional operating items see pages 17 and F-11.
(3)    Reported volume movement has been impacted by acquisitions and / or disposals. For further details see pages 44-47.
(4)    Spirits brands excluding ready to drink and non-alcoholic variants.
(5)    Organic equals reported volume movement.
(6)    Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.



28
Asia Pacific contributedAsia Pacific organic net sales grew
20% of Diageo reported net sales in first half of fiscal 2317% in first half of fiscal 23
deo-20221231_g12.jpg deo-20221231_g13.jpg
Market highlights

•India net sales grew 11%, with volume growth of 7%, driven by strong consumer demand and continued premiumisation. IMFL whisky grew 13% and scotch grew double-digit, driven by Johnnie Walker and Black Dog.
•Greater China net sales grew 2%, driven by scotch, mostly offset by a decline in Chinese white spirits which continued to be impacted by on-trade restrictions. Scotch grew 20%, driven by strength in Taiwan and mainland China, with strong performance in the super-premium-plus segment.
•Australia net sales grew 3%, primarily driven by price increases. Growth was led by beer and ready to drink.
•South East Asia net sales grew 51%, benefitting from a strong return in the on-trade and tourism, following the easing of Covid-19 restrictions. Scotch grew 49%, mostly driven by Johnnie Walker premium variants and scotch malts.
•North Asia (Korea and Japan) net sales grew 29%, benefitting from the recovery of the on-trade. Growth was primarily driven by double-digit growth in Johnnie Walker premium-plus variants and Windsor.
•Travel Retail Asia and Middle East net sales grew triple-digit primarily driven by Johnnie Walker premium-plus variants.
29
Latin America and Caribbean

•Reported net sales grew 34%, primarily reflecting strong organic growth. Net sales were favourably impacted by foreign exchange, mainly due to a strengthening of the Mexican peso and Brazilian real.
•Organic net sales grew 20%, with 6% volume growth. Strong double-digit growth, particularly in Brazil, Central America and Caribbean (CCA) and Mexico, primarily driven by price increases and premiumisation.
•Spirits net sales grew 22%, primarily driven by strong double-digit growth in scotch, tequila and vodka.
•Organic operating margin expanded by 1bp. Prices increases, premiumisation and leverage on operating costs offset increases in marketing investment, cost inflation and negative market mix.
•Marketing investment grew 29%, ahead of organic net sales growth with investment in key markets and brands.

F22 H1
Exchange
Acquisitions
and
disposals		Organic movementF23 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales819 111 3 167 1,100 34 
Marketing125 14 1 37 177 42 
Operating profit333 69 — 69 471 41 
Organic
volume
movement		Reported
volume
movement		Organic
net sales
movement		Reported
net sales
movement
Markets and categories:%%%%
Latin America and Caribbean(1)
6 7 20 34 
Brazil(1)(2)
13 17 33 68 
Mexico(1)
(4)(3)16 40 
CCA7 7 22 31 
South LAC(1)(2)
8 — 15 6 
Andean(1)
(12)(11)8 6 
Spirits(1)
6 7 22 36 
Beer1 1 14 24 
Ready to drink1 1 6 20 
Organic
volume
movement(4)
Organic
net sales
movement		Reported
net sales
movement
Global giants, local stars and reserve(3):
%%%
Johnnie Walker12 24 37 
Buchanan’s4 16 25 
Don Julio31 58 86 
Old Parr25 39 50 
Smirnoff17 19 34 
Black & White7 30 48 
Baileys(17)(6)4 
Tanqueray(6)(3)10 

(1)    Reported volume movement has been impacted by acquisitions and / or disposals. For further details see pages 44-47.
(2)    From 1 July 2022 Uruguay and Paraguay domestic channels moved on a management basis from PUB (Paraguay, Uruguay and Brazil) to PEBAC (Peru, Ecuador, Bolivia, Argentina and Chile) and the new cluster has been called South LAC. This reflects how management reviews performance.
(3)    Spirits brands excluding ready to drink and non-alcoholic variants.
(4)    Organic equals reported volume movement.
30
Latin America and Caribbean contributedLatin America and Caribbean organic net sales grew
12% of Diageo reported net sales in first half of fiscal 2320% in first half of fiscal 23
deo-20221231_g14.jpg deo-20221231_g15.jpg

Market highlights

•Brazil net sales grew 33%, with strong volume growth, primarily driven by continued momentum leading to market share gains. Growth in scotch was driven by double-digit growth in Johnnie Walker and triple-digit growth in Old Parr, underpinned by increased marketing investment. Strong double-digit growth in vodka was driven by Smirnoff and Cîroc.
•Mexico net sales grew 16%, mainly driven by tequila and scotch. Tequila grew strongly, largely driven by price increases, lapping of aged liquid supply constraints in the first half of fiscal 22 and supported by increased marketing investment. In scotch, growth was primarily driven by Johnnie Walker.
•CCA (Central America and Caribbean) net sales grew 22%, with volume growth of 7%. Growth was driven by price increases and premiumisation, continuing momentum in the on-trade and further tourism recovery in the Caribbean. Scotch net sales grew double-digit, driven by Johnnie Walker and Old Parr.
•Andean (Colombia and Venezuela) net sales grew 8%, primarily driven by Buchanan’s, supported by price increases.
•South LAC (Argentina, Bolivia, Chile, Ecuador, Paraguay, Peru and Uruguay) net sales grew 15%, with volume growth of 8%, primarily driven by double-digit growth in Argentina and Ecuador, with strong performance in premium-plus scotch.


31
Africa

•Reported net sales grew 9%, primarily driven by organic growth and a favourable impact from foreign exchange.
•Organic net sales grew 6%, with growth across all markets supported by price increases, partially offset by an organic volume decline.
•Spirits net sales grew 15%, driven by double-digit growth in both mainstream and international spirits, particularly scotch.
•Beer net sales grew 2%, primarily driven by Guinness and Malta Guinness which grew 7% and 5% respectively. This growth was offset by a slow down in Kenya following price and duty increases.
•Organic operating margin expanded by 126bps, primarily driven by price increases, productivity savings, positive mix and lapping one-off costs, partially offset by cost inflation and increased marketing investment.
•Marketing investment grew 8%, to support premiumisation, key categories and route to consumer opportunities.

F22 H1
Exchange
Acquisitions
and
disposals		Organic movementF23 H1Reported movement
Key financials
£ million
£ million
£ million
£ million
£ million
%
Net sales868 30 (7)52 943 9 
Marketing102 3 (1)8 112 10 
Operating profit before exceptional items176 (23)4 23 180 2 
Markets:Organic
volume
movement		Reported
volume
movement		Organic
net sales
movement		Reported
net sales
movement
Markets and categories:%%%%
Africa(1)
(5)(6)6 9 
East Africa(4)(4)2 10 
Africa Regional Markets(1)
(1)(6)8 (5)
Nigeria(6)(6)8 19 
South Africa(16)(16)10 12 
Spirits(1)
— 1 15 19 
Beer(1)
(11)(13)2 3 
Ready to drink(6)(6)3 9 
Organic
volume
movement(3)
Organic
net sales
movement		Reported
net sales
movement
Global giants and local stars(2):
%%%
Guinness(5)7 10 
Johnnie Walker22 22 23 
Smirnoff(19)7 10 
Other beer:
Malta Guinness
(15)5 (5)
Senator(15)(4)2 
Tusker2 6 14 
Serengeti7 9 26 

(1)    Reported volume movement has been impacted by acquisitions and / or disposals. For further details see pages 44-47.
(2)    Spirits brands excluding ready to drink and non-alcoholic variants.
(3)    Organic equals reported volume movement, except for Malta Guinness, which had reported volume movement of (17)%.    


32
Africa contributedAfrica organic net sales grew
10% of Diageo reported net sales in first half of fiscal 236% in first half of fiscal 23
deo-20221231_g16.jpg deo-20221231_g17.jpg

Market highlights
•East Africa net sales grew 2%, driven by growth in spirits, partially offset by a decline in beer following price and duty increases. Spirits growth was primarily driven by scotch, particularly Johnnie Walker.
•Africa Regional Markets net sales grew 8%. Spirits growth was primarily driven by strong growth in Johnnie Walker premium variants. Growth in beer was primarily driven by Malta Guinness supported by price increases.
•Nigeria net sales grew 8%. Spirits growth was driven by Orijin, which benefitted from improved route to consumer and marketing investment. Beer growth was led by Guinness, primarily driven by price increases.
•South Africa net sales grew 10%, driven by Johnnie Walker premium variants and Smirnoff, partially offset by a decline in gin.



33
Corporate
Net sales
Corporate net sales principally arise from visitor centres and the global licensing of Diageo brands and trademarks. Corporate net sales were £44 million in the six months ended 31 December 2022, an increase of £21 million compared to the six months ended 31 December 2021. Net sales were favourably impacted by an organic increase of £21 million.
Operating profit
Corporate operating costs comprise central costs, including finance, marketing, corporate relations, human resources and legal, as well as certain information systems, facilities and employee costs that are not allocated to the geographical segments or to the Supply Chain and Procurement segment. Operating costs were £157 million in the six months ended 31 December 2022, an increase of £32 million compared to the six months ended 31 December 2021. The £32 million increase in costs in the six months ended 31 December 2022 was principally a result of higher staff, IT and consultancy costs, further affected by unfavourable exchange rate movements of £2 million (coming from an unfavourable £17 million translation impact partially offset by a favourable £15 million transactional exchange impact) primarily due to the weakening of sterling against the US dollar.
34
Category and brand review
•Spirits net sales grew 10%, with 3% volume growth. Growth was across most categories, including double-digit performance in scotch, tequila and IMFL whisky.
•Scotch net sales grew 19%, with 7% volume growth. Growth was led by Johnnie Walker, with strong growth of 21% and single malts also grew strongly at 28%.
•Tequila net sales grew 28%, with 15% volume growth, with Don Julio and Casamigos growing strongly in North America.
•Vodka net sales declined 2% overall, with flat volume. A decline in North America was partially offset by growth across all other regions, including double-digit growth in Europe, Latin America and Caribbean and Asia Pacific.
•Rum net sales grew 5%, driven by Captain Morgan growth across all regions.
•Beer net sales grew 9%, with growth in all regions and double-digit growth of Guinness in Ireland, Great Britain and North America.
•Ready to drink net sales grew 8%, with growth in all regions, including double-digit growth in North America and Europe.

Key categories:
Organic
volume
movement(1)
%
Organic
net sales
movement
%		Reported
net sales
movement
%
Spirits(2)
3 10 20 
Scotch7 19 27 
Tequila15 28 48 
Vodka(3)(4)
— (2)8 
Canadian whisky(6)(8)6 
Liqueurs(3)(1)5 
Rum(3)
(1)5 13 
Gin(3)
— 3 9 
IFML whisky7 13 8 
Chinese white spirits(5)(7)— 
US whiskey1 12 29 
Beer(6)9 13 
Ready to drink— 8 16 

deo-20221231_g18.jpgdeo-20221231_g19.jpgdeo-20221231_g20.jpg
nScotchnVodkanUS whiskeynCanadian whiskynRumnIMFL whisky
nLiqueursnGinnTequilanBeernReady to drinknOther

(1)    Organic equals reported volume movement except for spirits (2)%, tequila 17%, vodka (1)%, liqueurs (1)%, IMFL whisky (12)%, beer (7)%.
(2)    Spirits brands excluding ready to drink and non-alcoholic variants.
(3)    Vodka, rum and gin include IMFL variants.
(4)    Vodka includes Ketel One Botanical.
35
Scotch
27% of Diageo’s reported net sales and grew 19%
•Double-digit growth across all regions, except for a marginal decline in North America. Particularly strong performance in Asia Pacific and Latin America and Caribbean, driven by Johnnie Walker. Growth also reflects continued recovery of Travel Retail with triple-digit growth in Asia Pacific.
•Johnnie Walker net sales grew 21%, with strong double-digit growth in all regions except North America.
–Johnnie Walker Black Label grew 26%, with particularly strong growth in Asia Pacific, which grew 52%.
–Johnnie Walker Blue Label grew 11%, supported by the return of Travel Retail.
–Johnnie Walker Red Label grew 17%, with strong double-digit growth in Latin America and Caribbean and Asia Pacific.
•Scotch malts grew 28%, primarily driven by strong double-digit growth in Asia Pacific and North America.
•Primary scotch brands grew 14%, primarily driven by double-digit growth of Black & White and Black Dog in India.

Tequila
11% of Diageo’s reported net sales and grew 28%
•Growth reflects the strong performance of Don Julio and Casamigos which grew 26% and 29% respectively, driven by North America.

Vodka
9% of Diageo’s reported net sales and declined 2%
•Growth across most regions, and strong market share gains in Europe were offset by a decline in North America.
•Smirnoff net sales grew 11%, with resilient growth in all regions, particularly Europe and North America.
•Ketel One net sales declined 11%, driven by North America.
•Cîroc net sales declined 34%, driven by North America.

Canadian whisky
6% of Diageo’s reported net sales and declined 8%
•Decline was driven by Crown Royal in North America

Rum
5% of Diageo’s reported net sales and grew 5%
•Captain Morgan grew 5% with growth across all regions.
•Zacapa grew 11% with growth across all regions.

Liqueurs
5% of Diageo’s reported net sales and declined 1%
•Decline was driven by Godiva.
•Baileys was flat in the period, with growth in Europe offset by a decline in North America.

Gin
5% of Diageo’s reported net sales and grew 3%
•Growth across all regions except North America.
•Tanqueray net sales declined, with growth in Europe and Asia Pacific offset by declines in other regions.
•Gordon’s grew in all regions, except for Europe where net sales were flat.

IMFL whisky
4% of Diageo’s reported net sales and grew 13%
•Growth was mainly driven by Royal Challenge, Signature and McDowell's No.1.

Chinese white spirits
3% of Diageo’s reported net sales and declined 7%
•Decline in Chinese white spirits due to continued impact from Covid-19 on-trade restrictions.

US whiskey
2% of Diageo’s reported net sales and grew 12%
•Double-digit growth in Bulleit whiskey, driven by North America and positive market share momentum across the category.
•Performance is lapping a decline in the first half of fiscal 2022 when performance was impacted by glass supply constraints.

36
Beer
14% of Diageo’s reported net sales and grew 9%
•Growth was primarily driven by Guinness growth of 17% net sales and volume growth of 2%, particularly in Europe, our Brand Homes and North America.
•Beer in Africa grew 2%, driven by Guinness, which grew 7%.
•Net sales of Smirnoff flavoured malt beverages declined in North America.

Ready to drink
4% of Diageo’s reported net sales and grew 8%
•Growth in all regions, double-digit growth across North America and Europe.
•Growth was primarily driven by double-digit growth in Smirnoff Ice, Bundaberg and Captain Morgan Spiced ready to drink.

Global giants, local stars and reserve(1):
Organic
volume
movement(2)
%
Organic
net sales
movement
%		Reported
net sales
movement
%
Global giants
Johnnie Walker14 21 29 
Guinness2 17 22 
Smirnoff2 11 21 
Baileys(3)— 7 
Captain Morgan(1)5 14 
Tanqueray(6)(2)6 
Local stars
Crown Royal(10)(8)6 
Shui Jing Fang(3)
(5)(7)— 
Buchanan’s(3)6 16 
McDowell's— 2 9 
Old Parr23 34 44 
Black & White11 28 42 
JεB(5)1 4 
Yenì Raki(4)6 36 
Windsor56 55 56 
Bundaberg(1)6 12 
Ypióca(8)7 28 
Reserve
Don Julio12 26 45 
Casamigos17 28 48 
Scotch malts11 28 34 
Ketel One(4)
(9)(10)3 
Bulleit whiskey(5)
9 17 33 
Cîroc vodka(30)(34)(27)

(1)    Brands excluding ready to drink, non-alcoholic variants and beer except Guinness.
(2)    Organic equals reported volume movement.
(3)    Growth figures represent total Chinese white spirits of which Shui Jing Fang is the principal brand.
(4)    Ketel One includes Ketel One vodka and Ketel One Botanical.
(5)    Bulleit whiskey excludes Bulleit Crafted Cocktails.

37
Global giants
40% of Diageo’s reported net sales and grew 13%.

Local stars
19% of Diageo’s reported net sales and grew 1%.

Reserve
28% of Diageo’s reported net sales and grew 12%.

38
LIQUIDITY AND CAPITAL RESOURCES
1. Sources and uses of liquidity

The primary source of the group’s liquidity over the last three financial years has been cash generated from operations. These funds have generally been used to pay interest, taxes and dividends, and to fund capital expenditure and acquisitions, and, together with the group’s current strong cash position, are expected to continue to fund future operating and capital needs. The group also issues short-term commercial paper regularly in order to finance its day-to-day operations.

The table below sets forth the group’s available undrawn committed bank facilities as at 31 December 2022.

31 December 2022
£ million
Expiring within one year800 
Expiring between one and two years104 
Expiring after two years1,908 
2,812 

The facilities can be used for general corporate purposes and, together with cash and cash equivalents, support the group’s commercial paper programmes.
There are no financial covenants on the group’s material short- and long-term borrowings. Certain of these borrowings contain cross default provisions and negative pledges.
The committed bank facilities are subject to a single financial covenant, being minimum interest cover ratio of two times (defined as the ratio of operating profit before exceptional items, aggregated with share of after tax results of associates and joint ventures, to net interest charges). They are also subject to pari passu ranking and negative pledge covenants.
Any non-compliance with covenants underlying Diageo’s financing arrangements could, if not waived, constitute an event of default with respect to any such arrangements, and any non-compliance with covenants may, in particular circumstances, lead to an acceleration of maturity on certain borrowings and the inability to access committed facilities. Diageo was in full compliance with its financial, pari passu ranking and negative pledge covenants in respect of its material short- and long-term borrowings throughout each of the years presented.
Management believe that it has sufficient funding for its working capital requirements.

2. Analysis of cash flows
The table below sets forth the group’s cash flows as at 31 December 2022.
31 December 2022
£ million
Net cash inflow from operating activities
1,248
Net cash outflow from investing activities
(476)
Net cash outflow from financing activities
(183)
Net increase in net cash and cash equivalents
589
Exchange differences
(63)
Reclassification to assets held for sale(47)
Net cash and cash equivalents at beginning of period
2,211
Net cash and cash equivalents at end of the period
2,690

Net cash inflow from operating activities was £1,248 million, a decrease of £699 million compared to the first half of fiscal 22, primarily driven by a strong growth in operating profit and a favourable foreign exchange impact, which was offset by a higher year-on-year working capital outflow, higher cash tax and interest paid, and increased capital investment.

Net cash outflow from investing activities was £476 million, a decrease of £28 million compared to the first half of fiscal 22, mainly driven by an increased capex investment, which was partially offset by business acquisitions (£144 million) and sale of business (£99 million).
39

Net cash outflow from financing activities was £183 million, a decrease of £2,148 million compared to the first half of fiscal 22. This change was largely driven by 1,534 million net inflow in relation to bond issuances and repayments (2022 – £769m net outflow).

The operating, investing and financing activities described above resulted in an increase in net cash and cash equivalents of £479 million, from £2,211 million at 30 June 2022 to £2,690 million at 31 December 2022.
3. Analysis of borrowings
The group policy with regard to the expected maturity profile of borrowings of group finance companies is to limit the proportion of such borrowings maturing within 12 months to 50% of gross borrowings less money market demand deposits, and the level of commercial paper to 30% of gross borrowings less money market demand deposits. In addition, it is group policy to maintain backstop facility terms from relationship banks to support commercial paper obligations.

The group’s gross borrowings and net borrowings are measured at amortised cost with the exception of borrowings designated in fair value hedge relationships, interest rate hedging instruments and foreign currency swaps and forwards. For borrowings designated in fair value hedge relationships, Diageo recognises a fair value adjustment for the risk being hedged in the balance sheet, whereas interest rate hedging instruments and foreign currency swaps and forwards are measured at fair value.

The table below sets forth the group’s gross borrowings and net borrowings as at 31 December 2022.

31 December 202230 June 2022
£ million£ million
Overdrafts(76)(74)
Other borrowings due within one year(2,229)(1,448)
Borrowings due within one year(2,305)(1,522)
Borrowings due between one and three years(2,935)(2,817)
Borrowings due between three and five years(3,062)(2,625)
Borrowings due after five years(9,307)(9,056)
Fair value of foreign currency forwards and swaps534 356 
Fair value of interest rate hedging instruments(422)(283)
Lease liabilities(438)(475)
Gross borrowings(17,935)(16,422)
Offset by:
Cash and cash equivalents2,766 2,285 
Net borrowings(15,169)(14,137)

The table below sets forth the percentage of the group’s gross borrowings and cash and cash equivalents by currency as at 31 December 2022.

Total
£ million		US
dollar
%		Sterling
%		Euro
%		Indian
rupee
%		Nigerian naira
%		Russian rouble
%		Chinese yuan
%		Other(i)(iii)
%
Gross borrowings(17,935)29 %47 %16 %— %— %— %— %8 %
Cash and cash equivalents2,766 60 %2 %2 %3 %4 %2 %11 %16 %

Based on average monthly net borrowings and net interest charge, the effective interest rate for the six months ended 31 December 2022 was 3.8%. For this calculation, net interest charge excludes fair value adjustments to derivative financial instruments and borrowings and average monthly net borrowings include the impact of interest rate swaps that are no longer in a hedge relationship but exclude the market value adjustment for cross currency interest rate swaps.

For the six months ended 31 December 2022 , the group issued bonds of $2,000 million (£1,788 million – net of discount and fee) and repaid bonds of $300 million (£254 million).
In the six months ended 31 December 2021, the group repaid bonds of €900 million (£769 million).


40

In the six months ended 31 December 2022, the net movements in other borrowings principally arose from cash movement of foreign currency swaps and forwards and repayment of lease liabilities offset by the increase in bank loans.
In the six months ended 31 December 2021, the net movements in other borrowings principally arose from cash movement of foreign exchange swaps and forwards partially offset by the repayment of lease liabilities.

The group’s management is committed to enhancing shareholder value in the long-term, both by investing in the business and brands so as to deliver continued improvement in the return from those investments and by managing the capital structure. Diageo manages its capital structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to debt markets at attractive cost levels. This is achieved by targeting an adjusted net borrowings (net borrowings aggregated with post employment benefit liabilities) to adjusted EBITDA leverage of 2.5 - 3.0 times, this range for Diageo being currently broadly consistent with an A band credit rating. Diageo would consider operating outside of this range in order to effect strategic initiatives within its stated goals, which could have an impact on its rating. If Diageo’s leverage was to be negatively impacted by the financing of an acquisition, it would seek over time to return to the range of 2.5 - 3.0 times. The group regularly assesses its debt and equity capital levels against its stated policy for capital structure. As at 31 December 2022, the adjusted net borrowings (£15,550 million) to adjusted EBITDA ratio was 2.5 times. For this calculation net borrowings are adjusted by post employment benefit liabilities before tax (£381 million) whilst adjusted EBITDA (£6,153 million) comprises operating profit excluding exceptional operating items and depreciation, amortisation and impairment and includes share of after tax results of associates and joint ventures.

The group’s funding, liquidity and exposure to foreign currency, interest rate risks, financial credit risk and commodity price risk are conducted within a framework of board approved policies and guidelines. The group purchases insurance for commercial or, where required, for legal or contractual reasons. In addition, the group retains some insurable risk where external insurance is not considered to be an economic means of mitigating this risk. Loan, trade and other receivables exposures are managed locally in the operating units where they arise and credit limits are established as deemed appropriate for the customer.

b) The following bonds were issued and repaid:
 31 December 202231 December 2021
£ million£ million
Issued
$ denominated1,788 — 
Repaid
€ denominated— (769)
$ denominated(254)— 
1,534 (769)

4. Capital repayments

Authorisation was given by shareholders on 6 October 2022 to purchase a maximum of 227,870,414 ordinary shares at a minimum price of 28101/108 pence and a maximum price of higher of (a) 105% of the average of the middle market quotations for an ordinary share for the five preceding business days and (b) the higher of the price of the last independent trade and the highest current independent bid on the trading venue at the time the purchase is carried out. The programme expires at the conclusion of the next Annual General Meeting or on 5 January 2024, if earlier.


41
DEFINITIONS AND RECONCILIATION OF NON-GAAP MEASURES TO GAAP MEASURES
Diageo’s strategic planning process is based on certain non-GAAP measures, including organic movements. These non-GAAP measures are chosen for planning and reporting, and some of them are used for incentive purposes. The group’s management believes that these measures provide valuable additional information for users of the financial statements in understanding the group’s performance. These non-GAAP measures should be viewed as complementary to, and not replacements for, the comparable GAAP measures and reported movements therein.

It is not possible to reconcile the forecast tax rate before exceptional items, forecast organic net sales growth and forecast organic operating profit growth to the most comparable GAAP measure as it is not possible to predict, without unreasonable effort, with reasonable certainty, the future impact of changes in exchange rates, acquisitions and disposals and potential exceptional items.

Volume

Volume is a performance indicator that is measured on an equivalent units basis to nine-litre cases of spirits. An equivalent unit represents one nine-litre case of spirits, which is approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. Therefore, to convert volume of products other than spirits to equivalent units, the following guide has been used: beer in hectolitres, divide by 0.9; wine in nine-litre cases, divide by five; ready to drink and certain pre-mixed products that are classified as ready to drink in nine-litre cases, divide by ten.

Organic movements

Organic information is presented using sterling amounts on a constant currency basis excluding the impact of exceptional items, certain fair value remeasurement, hyperinflation and acquisitions and disposals. Organic measures enable users to focus on the performance of the business which is common to both years and which represents those measures that local managers are most directly able to influence.

Calculation of organic movements

The organic movement percentage is the amount in the row titled ‘Organic movement’ in the tables below, expressed as a percentage of the relevant absolute amount in the row titled ‘Six months ended 31 December 2021 adjusted’. Organic operating margin is calculated by dividing operating profit before exceptional items by net sales after excluding the impact of exchange rate movements, certain fair value remeasurements, hyperinflation and acquisitions and disposals.

(a) Exchange rates

Exchange in the organic movement calculation reflects the adjustment to recalculate the reported results as if they had been generated at the prior period weighted average exchange rates.
Exchange impacts in respect of the external hedging of intergroup sales by the markets in a currency other than their functional currency and the intergroup recharging of services are also translated at prior period weighted average exchange rates and are allocated to the geographical segment to which they relate. Residual exchange impacts are reported as part of the Corporate segment. Results from hyperinflationary economies are translated at forward-looking rates.

(b) Acquisitions and disposals

For acquisitions in the current period, the post-acquisition results are excluded from the organic movement calculations. For acquisitions in the prior period, post-acquisition results are included in full in the prior period but are included in the organic movement calculation from the anniversary of the acquisition date in the current period. The acquisition row also eliminates the impact of transaction costs that have been charged to operating profit in the current or prior period in respect of acquisitions that, in management’s judgement, are expected to be completed.

Where a business, brand, brand distribution right or agency agreement was disposed of or terminated in the reporting period, the group, in the organic movement calculations, excludes the results for that business from the current and prior period. In the calculation of operating profit, the overheads included in disposals are only those directly attributable to the businesses disposed of, and do not result from subjective judgements of management.



42
(c) Exceptional items

Exceptional items are those that in management’s judgement need to be disclosed separately. Such items are included within the income statement caption to which they relate, and are excluded from the organic movement calculations. Management believes that that separate disclosure of exceptional items and the classification between operating and non-operating items further helps investors to understand the performance of the group. Changes in estimates and reversals in relation to items previously recognised as exceptional are presented consistently as exceptional in the current year.

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

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

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

(d) Fair value remeasurement

Fair value remeasurement in the organic movement calculation reflects an adjustment to eliminate the impact of fair value changes in biological assets, earn-out arrangements that are accounted for as remuneration and fair value changes relating to contingent consideration liabilities and equity options that arose on acquisitions recognised in the income statement.

Growth on a constant basis

Growth on a constant basis is a measure used by the group to understand the trends of the business and its recovery towards pre-Covid-19 performance.

2018 (i.e. six months ended 31 December 2018) to 2022 (i.e. six months ended 31 December 2022) growth on a constant basis for volume, sales, net sales and operating profit before exceptional items is calculated by adding up the respective periods’ organic movement in the row titled ‘Organic movement’ in the tables below, expressed as a percentage of the relevant absolute amount in the row titled ‘Six months ended 31 December 2018 adjusted’. The most comparable GAAP financial measure is 'Six months ended 31 December 2018 to six months ended 31 December 2022 reported movement %' in the tables below which is calculated by combining the reported movements for the respective periods, expressed as a percentage of the Six months ended 31 December 2018 reported amount.

Adjustment in respect of hyperinflation

The group's experience is that hyperinflationary conditions result in price increases that include both normal pricing actions reflecting changes in demand, commodity and other input costs or considerations to drive commercial competitiveness, as well as hyperinflationary elements and that for the calculation of organic movements, the distortion from hyperinflationary elements should be excluded.

Cumulative inflation over 100% (2% per month compounded) over three years is one of the key indicators within IAS 29 to assess whether an economy is deemed to be hyperinflationary. As a result, the definition of 'Organic movements' includes price growth in markets deemed to be hyperinflationary economies, up to a maximum of 2% per month while also being on a constant currency basis. Corresponding adjustments have been made to all income statement related lines in the organic movement calculations.

In the tables presenting the calculation of organic movements, 'hyperinflation' is included as a reconciling item between reported and organic movements and that also includes the relevant IAS 29 adjustments.

43
Organic movement calculations for the six months ended 31 December 2022 were as follows:

North America
million		Europe
million		Asia
Pacific
million		Latin America
and Caribbean
million		Africa
million		Corporate
million		Total
million
Volume (equivalent units)
Six months ended 31 December 2018 reported25.6 25.7 49.2 12.4 17.6 — 130.5 
Disposals(1.3)— — — (0.3)— (1.6)
Six months ended 31 December 2018 adjusted24.3 25.7 49.2 12.4 17.3 — 128.9 
Organic movement (2019)0.7 (0.3)(0.4)(0.1)0.3 — 0.2 
Organic movement (2020)2.0 (1.2)(1.4)0.5 (0.2)— (0.3)
Organic movement (2021)0.2 5.4 1.7 2.0 2.6 — 11.9 
Six months ended 31 December 2019, six months ended 31 December 2020 and six months ended 31 December 2021 movement on a constant basis2.9 3.9 (0.1)2.4 2.7 — 11.8 
Volume (equivalent units)
Six months ended 31 December 2021 reported28.0 29.4 49.1 14.8 18.9 — 140.2 
Disposals(2)
— (0.5)(11.6)— (0.2)— (12.3)
Six months ended 31 December 2021 adjusted28.0 28.9 37.5 14.8 18.7 — 127.9 
Organic movement(1.1)(0.1)3.6 0.9 (1.0)— 2.3 
Acquisitions and disposals(2)
0.1 0.4 6.0 0.1 — — 6.6 
Six months ended 31 December 2022 reported27.0 29.2 47.1 15.8 17.7 — 136.8 
Organic movement %(4)— 10 6 (5)— 2 
Six months ended 31 December 2018 to six months ended 31 December 2022 reported growth %5 14 (4)27 1 — 5 
Six months ended 31 December 2018 to six months ended 31 December 2022 growth on a constant basis %7 15 7 27 10 — 11 
North America
£ million		Europe
£ million		Asia
Pacific
£ million		Latin America
and Caribbean
£ million		Africa
£ million		Corporate
£ million		Total
£ million
Sales
Six months ended 31 December 2021 reported3,257 3,178 2,999 1,052 1,244 23 11,753 
Exchange48 (221)33 17 6 — (117)
Disposals(2)
— (20)(440)— (9)— (469)
Six months ended 31 December 2021 adjusted3,305 2,937 2,592 1,069 1,241 23 11,167 
Organic movement80 269 213 189 58 21 830 
Acquisitions and disposals(2)
14 10 225 6 — — 255 
Exchange448 98 140 130 38 — 854 
Hyperinflation— 113 — — — — 113 
Six months ended 31 December 2022 reported3,847 3,427 3,170 1,394 1,337 44 13,219 
Organic movement %2 9 8 18 5 91 7 
44

North America
£ million		Europe
£ million		Asia
Pacific
£ million		Latin America
and Caribbean
£ million		Africa
£ million		Corporate
£ million		Total
£ million
Net sales
Six months ended 31 December 2018 reported2,3561,6331,398672821286,908
Exchange(20)(20)32(4)—(39)
Disposals(62)(1)(1)(1)(29)—(94)
Six months ended 31 December 2018 adjusted 2,2741,6121,400673788286,775
Organic movement (2019)12942621440(1)286
Organic movement (2020)307(163)(48)(9)(3)(16)68
Organic movement (2021)338389181258166121,344
Six months ended 31 December 2019, six months ended 31 December 2020 and six months ended 31 December 2021 movement on a constant basis774268195263203(5)1,698
Net sales
Six months ended 31 December 2021 reported2,9641,7521,531819868237,957
Exchange(1)
44(67)14124—7
Disposals(2)
—(16)(68)—(7)—(91)
Six months ended 31 December 2021 adjusted3,0081,6691,477831865237,873
Organic movement88 164 250 167 52 21 742 
Acquisitions and disposals(2)
13 7 35 3 — — 58 
Exchange(1)
408 54 75 99 26 — 662 
Hyperinflation— 85 — — — — 85 
Six months ended 31 December 2022 reported3,517 1,979 1,837 1,100 943 44 9,420 
Organic movement %3 10 17 20 6 91 9 
Six months ended 31 December 2018 to six months ended 31 December 2022 reported growth %49 21 31 64 15 57 36 
Six months ended 31 December 2018 to six months ended 31 December 2022 growth on a constant basis %38 27 32 64 32 57 36 
North America
£ million		Europe
£ million		Asia
Pacific
£ million		Latin America
and Caribbean
£ million		Africa
£ million		Corporate
£ million		Total
£ million
Marketing
Six months ended 31 December 2021 reported548 307 263 125 102 6 1,351 
Exchange6 (2)3 1 — — 8 
Fair value remeasurement of contingent considerations, equity option and earn out arrangements1 — — — — — 1 
Disposals(2)
————(1)—(1)
Six months ended 31 December 2021 adjusted555 305 266 126 101 6 1,359 
Organic movement13 9 24 37 8 2 93 
Acquisitions and disposals(2)
7 — — 1 — — 8 
Exchange74 5 12 13 3 1 108 
Hyperinflation— 9 — — — — 9 
Six months ended 31 December 2022 reported649 328 302 177 112 9 1,577 
Organic movement %2 3 9 29 8 33 7 
45
North America
£ million		Europe
£ million		Asia
Pacific
£ million		Latin America
and Caribbean
£ million		Africa
£ million		Corporate
£ million		Total
£ million
Operating profit before exceptional items
Six months ended 31 December 2018 reported2,451 
Exchange(19)
Disposal(44)
Six months ended 31 December 2018 adjusted2,388 
Organic movement (2019)110 
Organic movement (2020)(85)
Organic movement (2021)550 
Six months ended 31 December 2019, six months ended 31 December 2020 and six months ended 31 December 2021 movement on a constant basis575 
Operating profit before exceptional items
Six months ended 31 December 2021 reported1,295613451333176(125)2,743
Exchange(1)
4(36)31010(3)(12)
Fair value remeasurement of contingent considerations and equity option(4)(21)————(25)
Acquisitions and disposals(2)
—(10)(14)—4—(20)
Six months ended 31 December 2021 adjusted1,295546440343190(128)2,686
Organic movement(26)1061196923(30)261
Acquisitions and disposals(2)
(6)25———1
Fair value remeasurement of contingent considerations, equity option and earn out arrangements14(1)————13
Exchange(1)
142212359(33)1213
Hyperinflation—20————20
Six months ended 31 December 2022 reported1,419694587471180(157)3,194
Organic movement %(2)19272012(23)10
Organic operating margin % (3)
Six months ended 31 December 202241.035.632.441.323.2n/a34.2
Six months ended 31 December 202143.132.729.841.322.0n/a34.1
Margin movement (bps)(206)2862581126n/a9
Six months ended 31 December 2018 to six months ended 31 December 2022 reported growth %30
Six months ended 31 December 2018 to six months ended 31 December 2022 growth on a constant basis %35

(i)    For the reconciliation of sales to net sales, see page 16.
(ii)    Percentages and margin movements are calculated on rounded figures.

Notes: Information in respect of the organic movement calculations
(1) The impact of movements in exchange rates on reported figures for net sales and operating profit was principally in respect of the translation exchange impact of the weakening of sterling against the US dollar, Brazilian real and the Mexican peso, partially offset by strengthening of sterling against the Turkish lira.
(2)    Acquisitions and disposals that had an effect on volume, sales, net sales, marketing and operating profit in the six months ended 31 December 2022, are detailed on page 47.
(3)    Organic operating margin calculated by dividing Operating profit before exceptional items by net sales.








46
In the six months ended 31 December 2022, the acquisitions and disposals that affected volume, sales, net sales, marketing and operating profit were as follows, as per footnote (2) on the previous page:
VolumeSalesNet salesMarketingOperating
profit
EUm£ million£ million£ million£ million
Six months ended 31 December 2021
Disposals
USL Popular brands(11.6)(440)(68)— (14)
Archers brand(0.1)(9)(6)— (4)
Meta Abo Brewery(0.2)(9)(7)(1)4 
Picon(0.4)(11)(10)— (6)
(12.3)(469)(91)(1)(20)
Six months ended 31 December 2022
Acquisitions
Mr Black— 3 3 1 (1)
Balcones— 3 3 1 (2)
Mezcal Unión0.1 6 3 1 — 
21Seeds0.1 8 7 5 (3)
0.2 20 16 8 (6)
Disposals
USL Popular brands6.0 225 35 — 5 
Archers brand0.4 10 7 — 2 
6.4 235 42 — 7 
Acquisitions and disposals6.6 255 58 8 1 

Earnings per share before exceptional items

Earnings per share before exceptional items is calculated by dividing profit attributable to equity shareholders of the parent company before exceptional items by the weighted average number of shares in issue.

Earnings per share before exceptional items for the six months ended 31 December 2022 and 31 December 2021 are set out in the table below:
20222021
£ million£ million
Profit attributable to equity shareholders of the parent company2,295 1,965 
Exceptional operating and non-operating items17 31 
Exceptional tax items and tax in respect of exceptional operating and non-operating items(70)— 
Exceptional items attributable to non-controlling interests1— 
Profit attributable to equity shareholders of the parent company before exceptional items2,243 1,996 
millionmillion
Weighted average number of shares
Shares in issue excluding own shares2,274 2,331 
Dilutive potential ordinary shares7 8 
Diluted shares in issue excluding own shares2,281 2,339 
pencepence
Basic earnings per share before exceptional items98.6 85.6 
Diluted earnings per share before exceptional items98.3 85.4 
    
47
Free cash flow

Free cash flow comprises the net cash flow from operating activities aggregated with the net cash received/paid for working capital loans receivable, cash paid or received for investments and the net cash expenditure paid for property, plant and equipment and computer software that are included in net cash flow from investing activities.

The remaining components of net cash flow from investing activities that do not form part of free cash flow, as defined by the group’s management, are in respect of the acquisition and sale of businesses and non-working capital loans to and from associates.

The group’s management regards a portion of the purchase and disposal of property, plant and equipment and computer software as ultimately non-discretionary since ongoing investment in plant, machinery and technology is required to support the day-to-day operations, whereas acquisition and sale of businesses are discretionary.

Where appropriate, separate explanations are given for the impacts of acquisition and sale of businesses, dividends paid and the purchase of own shares, each of which arises from decisions that are independent from the running of the ongoing underlying business.

Free cash flow reconciliations for the six months ended 31 December 2022 and 31 December 2021 are set out in the table below:
20222021
£ million£ million
Net cash inflow from operating activities1,248 1,947 
Disposal of property, plant and equipment and computer software6 7 
Purchase of property, plant and equipment and computer software(435)(382)
Movements in loans and other investments(2)3 
Free cash flow817 1,575 

48
Return on average invested capital

Return on average invested capital is used by management to assess the return obtained from the group’s asset base and is calculated to aid evaluation of the performance of the business.

The profit used in assessing the return on average invested capital reflects operating profit before exceptional items attributable to equity shareholders of the parent company plus share of after tax results of associates and joint ventures after applying the tax rate before exceptional items for the period. Average invested capital is calculated using the average derived from the consolidated balance sheets at the beginning and end of the period. Average capital employed comprises average net assets attributable to equity shareholders of the parent company for the period, excluding net post employment benefit assets/liabilities (net of deferred tax) and average net borrowings. This average capital employed is then aggregated with the average restructuring and integration costs net of tax, and goodwill written off to reserves at 1 July 2004, the date of transition to IFRS, to obtain the average total invested capital.

Calculations for the return on average invested capital for the six months ended 31 December 2022 and 31 December 2021 are set out in the table below:
20222021
£ million£ million
Operating profit3,161 2,743 
Exceptional operating items33 — 
Profit before exceptional operating items attributable to non-controlling interests(111)(123)
Share of after tax results of associates and joint ventures172 190 
Tax at the tax rate before exceptional items of 23.4% (2021 – 23.0%)(788)(675)
2,467 2,135 
Average net assets (excluding net post employment benefit assets/liabilities)8,977 8,331 
Average non-controlling interests(1,722)(1,604)
Average net borrowings14,653 12,220 
Average integration and restructuring costs (net of tax)1,639 1,639 
Goodwill at 1 July 20041,562 1,562 
Average invested capital25,109 22,148 
Return on average invested capital19.7 %19.3 %

49
Adjusted net borrowings to adjusted EBITDA

Diageo manages its capital structure with the aim of achieving capital efficiency, providing flexibility to invest through the economic cycle and giving efficient access to debt markets at attractive cost levels. The group regularly assesses its debt and equity capital levels to enhance its capital structure by reviewing the ratio of adjusted net borrowings to adjusted EBITDA (earnings before exceptional operating items, interest, tax, depreciation, amortisation and impairment).

Calculations for the ratio of adjusted net borrowings to adjusted EBITDA at 31 December 2022 and 31 December 2021 are set out in the table below:

20222021
£ million£ million
Borrowings due within one year2,305 1,184 
Borrowings due after one year15,304 12,693 
Fair value of foreign currency derivatives and interest rate hedging instruments(112)(126)
Lease liabilities438 360 
Less: Cash and cash equivalents(2,766)(1,780)
Net borrowings15,169 12,331 
Post employment benefit liabilities before tax381 486 
Adjusted net borrowings15,550 12,817 
Profit for the year3,657 3,226 
Taxation1,065 1,004 
Net finance charges534 353 
Depreciation, amortisation and impairment (excluding exceptional intangible impairment)506 452 
Exceptional intangible impairment336 — 
EBITDA6,098 5,035 
Exceptional operating items (excluding impairment)85 (2)
Non-operating items(30)22 
Adjusted EBITDA6,153 5,055 
Adjusted net borrowings to adjusted EBITDA2.5 2.5 
(1) EBITDA and adjusted EBITDA are calculated based on the last 12 months.
1) EBITDA and adjusted EBITDA are calculated based on the last 12 month
50
Tax rate before exceptional items

Tax rate before exceptional items is calculated by dividing the total tax charge before tax charges and credits in respect of exceptional items, by profit before taxation adjusted to exclude the impact of exceptional operating and non-operating items, expressed as a percentage. The measure is used by management to assess the rate of tax applied to the group’s operations before tax on exceptional items.

The tax rates from operations before exceptional and after exceptional items for the six months ended 31 December 2022 and six months ended 31 December 2021 are set out in the table below:
20222021
£ million£ million
Tax before exceptional items (a)720 634 
Tax in respect of exceptional items(13)— 
Exceptional tax credit(57)— 
Taxation on profit (b)650 634 
Profit before taxation and exceptional items (c)3,074 2,753 
Non-operating items16 (31)
Exceptional operating items(33)— 
Profit before taxation (d)3,057 2,722 
Tax rate before exceptional items (a/c)23.4 %23.0 %
Tax rate after exceptional items (b/d)21.3 %23.3 %

Other definitions

Volume share is a brand’s retail volume expressed as a percentage of the retail volume of all brands in its segment. Value share is a brand’s retail sales value expressed as a percentage of the retail sales value of all brands in its segment. Unless otherwise stated, share refers to value share.

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

Price/mix is the number of percentage points difference between the organic movement in net sales and the organic movement in volume. The difference arises because of changes in the composition of sales between higher and lower priced variants/markets or as price changes are implemented.

Shipments comprise the volume of products sold to Diageo’s immediate (first tier) customers. Depletions are the estimated volume of the onward sales made by Diageo's immediate customers. Both shipments and depletions are measured on an equivalent units basis.

References to emerging markets include Poland, Eastern Europe, Turkey, Africa, Latin America and Caribbean, and Asia Pacific (excluding Australia, Korea and Japan).

References to reserve brands include, but are not limited to, Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label Reserve, Johnnie Walker Aged 18 Years, John Walker & Sons Collection and other Johnnie Walker super and ultra-premium brands; The Singleton, Cardhu, Talisker, Lagavulin, Oban and other malt brands; Buchanan’s Special Reserve, Buchanan’s Red Seal; Haig Club whisky; Copper Dog whisky; Roe & Co; Bulleit Bourbon, Bulleit Rye; Orphan Barrel whiskey; Tanqueray No. TEN and Tanqueray Malacca gin; Aviation, Chase, Jinzu and Villa Ascenti gin; Cîroc, Ketel One vodka, Ketel One Botanical; Don Julio, Casamigos, DeLeón and 21Seeds tequila; Mezcal Unión mezcal; Zacapa, Bundaberg Master Distillers' Collection and Pampero Aniversario rum; Shui Jing Fang, Seedlip, Belsazar and Pierde Almas.
51

References to global giants include the following brand families: Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness. Local stars include Buchanan’s, Bundaberg, Crown Royal, JεB, McDowell’s, Old Parr, Yenì Raki, Black & White, Shui Jing Fang, Windsor and Ypióca. Global giants and local stars exclude ready to drink, non-alcoholic variants and beer except Guinness. References to Shui Jing Fang represent total Chinese white spirits of which Shui Jing Fang is the predominant brand.

References to ready to drink also include ready to serve products, such as pre-mixed cans in some markets.

References to beer include cider, flavoured malt beverages and some non-alcoholic products such as Malta Guinness.

The results of Hop House 13 Lager are included in the Guinness figures.

There is no industry-agreed definition for price tiers and for data providers such as IWSR, definitions can vary by market. Diageo bases internal price tier definitions on a segmentation most consistent with IWSR as the IWSR taxonomy is widely accepted and provides the industry with a common point of reference.

References to the disposal of the USL Popular brands includes non-exhaustively the Haywards, Old Tavern, White Mischief, Honey Bee, Green Label and Romanov brands.

References to the group include Diageo plc and its consolidated subsidiaries.


52
INDEX TO THE UNAUDITED CONDENSED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED 31 DECEMBER 2022 AND 31 DECEMBER 2021
The unaudited condensed consolidated financial information was approved by the board of directors on 25 January 2023.
F- 1
UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended
31 December 2022
Six months ended
31 December 2021
Notes£ million£ million
Sales2 13,219 11,753 
Excise duties(3,799)(3,796)
Net sales2 9,420 7,957 
Cost of sales(3,624)(2,955)
Gross profit5,796 5,002 
Marketing(1,577)(1,351)
Other operating items(1,058)(908)
Operating profit2 3,161 2,743 
Non-operating items3 16 (31)
Finance income4 257 130 
Finance charges4 (549)(310)
Share of after tax results of associates and joint ventures172 190 
Profit before taxation3,057 2,722 
Taxation5 (650)(634)
Profit for the period2,407 2,088 
Attributable to:
Equity shareholders of the parent company 2,295 1,965 
Non-controlling interests112 123 
2,407 2,088 
millionmillion
Weighted average number of shares
Shares in issue excluding own shares2,274 2,331 
Dilutive potential ordinary shares7 8 
2,281 2,339 
pencepence
Basic earnings per share100.9 84.3 
Diluted earnings per share100.6 84.0 

F- 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended 31 December 2022Six months ended 31 December 2021
£ million£ million
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment benefit plans
Group(527)585 
Associates and joint ventures10 4 
Tax on post employment benefit plans135 (136)
Changes in the fair value of equity investments at fair value through other comprehensive income(3)7 
(385)460 
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group(126)74 
Associates and joint ventures91 (45)
Non-controlling interests(39)46 
Net investment hedges(18)(46)
Tax on exchange differences - group(2)(5)
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group60 66 
Transaction exposure hedging of the group148 (87)
Commodity price risk hedging of the group (7)12 
Hedges by associates and joint ventures14 (10)
Recycled to income statement - hedge of foreign currency debt of the group(29)(53)
Recycled to income statement - transaction exposure hedging of the group (64)26 
Recycled to income statement - commodity price risk hedging of the group(35)(18)
Tax on effective portion of changes in fair value of cash flow hedges(17)12 
Hyperinflation adjustments108 (3)
Tax on hyperinflation adjustments(22)1 
62 (30)
Other comprehensive (loss)/income, net of tax, for the period(323)430 
Profit for the period2,407 2,088 
Total comprehensive income for the period2,084 2,518 
Attributable to:
Equity shareholders of the parent company2,011 2,349 
Non-controlling interests73 169 
Total comprehensive income for the period2,084 2,518 
F- 3
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
31 December 202230 June 202231 December 2021
Notes£ million£ million£ million£ million£ million£ million
Non-current assets
Intangible assets12,130 11,902 10,921 
Property, plant and equipment5,972 5,848 5,091 
Biological assets119 94 75 
Investments in associates and joint ventures3,925 3,652 3,473 
Other investments42 37 50 
Other receivables28 37 28 
Other financial assets399 345 319 
Deferred tax assets106 114 83 
Post employment benefit assets1,060 1,553 1,544 
23,781 23,582 21,584 
Current assets
Inventories6 7,552 7,094 6,235 
Trade and other receivables3,874 2,933 3,328 
Assets held for sale12182 222 16 
Corporate tax receivables5166 149 151 
Other financial assets398 251 66 
Cash and cash equivalents7 2,766 2,285 1,780 
14,938 12,934 11,576 
Total assets38,719 36,516 33,160 
Current liabilities
Borrowings and bank overdrafts7 (2,305)(1,522)(1,184)
Other financial liabilities(436)(444)(388)
Share buyback liability(215)(117)(184)
Trade and other payables(6,110)(5,887)(5,327)
Liabilities held for sale12(76)(61)(30)
Corporate tax payables5(266)(252)(380)
Provisions(113)(159)(111)
(9,521)(8,442)(7,604)
Non-current liabilities
Borrowings7 (15,304)(14,498)(12,693)
Other financial liabilities(771)(703)(378)
Other payables(353)(380)(278)
Provisions(266)(258)(278)
Deferred tax liabilities(2,257)(2,319)(2,112)
Post employment benefit liabilities(381)(402)(486)
(19,332)(18,560)(16,225)
Total liabilities(28,853)(27,002)(23,829)
Net assets9,866 9,514 9,331 
Equity
Share capital719 723 737 
Share premium1,351 1,351 1,351 
Other reserves2,193 2,174 1,551 
Retained earnings3,876 3,550 4,019 
Equity attributable to equity shareholders of the parent company8,139 7,798 7,658 
Non-controlling interests1,727 1,716 1,673 
Total equity9,866 9,514 9,331 

F- 4
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained earnings/(deficit)Equity attributable to parent company shareholders
£ million
Share
capital
£ million		Share
premium
£ million		Other reserves
£ million		Own shares
£ million		Other retained earnings
£ million		Total
£ million		Non-controlling interests
£ million		Total equity
£ million
At 30 June 2021741 1,351 1,621 (1,877)5,061 3,184 6,897 1,534 8,431 
Profit for the period— — — — 1,965 1,965 1,965 123 2,088 
Other comprehensive (loss)/income— — (74)— 458 458 384 46 430 
Total comprehensive (loss)/income for the period— — (74)— 2,423 2,423 2,349 169 2,518 
Employee share schemes— — — 30 36 66 66 — 66 
Share-based incentive plans— — — — 30 30 30 — 30 
Share-based incentive plans in respect of associates— — — — 2 2 2 — 2 
Share-based payments and purchase of own shares in respect of subsidiaries— — — — (8)(8)(8)(5)(13)
Associates' transactions with non-controlling interests— — — — 1 1 1 — 1 
Unclaimed dividend— — — — 3 3 3 1 4 
Change in fair value of put option— — — — (11)(11)(11)— (11)
Share buyback programme(4)— 4 — (631)(631)(631)— (631)
Dividend declared for the period— — — — (1,040)(1,040)(1,040)(26)(1,066)
At 31 December 2021737 1,351 1,551 (1,847)5,866 4,019 7,658 1,673 9,331 
At 30 June 2022723 1,351 2,174 (1,838)5,388 3,550 7,798 1,716 9,514 
Profit for the period— — — — 2,295 2,295 2,295 112 2,407 
Other comprehensive income/(loss)— — 15 — (299)(299)(284)(39)(323)
Total comprehensive income for the period— — 15 — 1,996 1,996 2,011 73 2,084 
Employee share schemes— — — 17 15 32 32 — 32 
Share-based incentive plans— — — — 27 27 27 — 27 
Share-based incentive plans in respect of associates— — — — 3 3 3 — 3 
Share-based payments and purchase of own shares in respect of subsidiaries— — — — 1 1 1 1 2 
Associates' transactions with non-controlling interests— — — — (12)(12)(12)— (12)
Unclaimed dividend— — — — 1 1 1 — 1 
Change in fair value of put option— — — — (4)(4)(4)— (4)
Share buyback programme(4)— 4 — (652)(652)(652)— (652)
Dividend declared for the period— — — — (1,066)(1,066)(1,066)(63)(1,129)
At 31 December 2022719 1,351 2,193 (1,821)5,697 3,876 8,139 1,727 9,866 
F- 5
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended
 31 December 2022		Six months ended
 31 December 2021
£ million£ million£ million£ million
Cash flows from operating activities
Profit for the period2,407 2,088 
Taxation650 634 
Share of after tax results of associates and joint ventures(172)(190)
Net finance charges292 180 
Non-operating items(16)31 
Operating profit3,161 2,743 
Increase in inventories(468)(187)
Increase in trade and other receivables(1,008)(976)
Increase in trade and other payables and provisions111 653 
Net increase in working capital(1,365)(510)
Depreciation, amortisation and impairment281 224 
Dividends received5 1 
Post employment payments less amounts included in operating profit(23)(23)
Other items7 34 
270 236 
Cash generated from operations2,066 2,469 
Interest received66 41 
Interest paid(248)(185)
Taxation paid(636)(378)
(818)(522)
Net cash inflow from operating activities1,248 1,947 
Cash flows from investing activities
Disposal of property, plant and equipment and computer software6 7 
Purchase of property, plant and equipment and computer software(435)(382)
Movements in loans and other investments(2)3 
Sale of businesses and brands99 2 
Acquisition of subsidiaries(1)
(113)(110)
Investment in associates and joint ventures(1)
(31)(24)
Net cash outflow from investing activities(476)(504)
Cash flows from financing activities
Share buyback programme(554)(538)
Net sale of own shares for share schemes9 42 
Purchase of treasury shares in respect of subsidiaries— (13)
Dividends paid to non-controlling interests(79)(51)
Proceeds from bonds1,788 — 
Repayment of bonds(254)(769)
Cash inflow from other borrowings144 136 
Cash outflow from other borrowings(172)(98)
Equity dividends paid(1,065)(1,040)
Net cash outflow from financing activities(183)(2,331)
Net increase/(decrease) in net cash and cash equivalents589 (888)
Exchange differences(63)14 
Reclassification to assets held for sale(47)— 
Net cash and cash equivalents at beginning of the period2,211 2,637 
Net cash and cash equivalents at end of the period2,690 1,763 
Net cash and cash equivalents consist of:
Cash and cash equivalents2,766 1,780 
Bank overdrafts(76)(17)
2,690 1,763 

(1)    For the six months ended 31 December 2022, the previously reported line item of "Acquisition of businesses" has been replaced with "Acquisition of subsidiaries" and "Investment in associates and joint ventures" to show separately the amounts which had previously been shown combined.
F- 6
NOTES
1. Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in accordance with UK adopted IAS 34 ‘Interim Financial Reporting’, IAS 34 ‘Interim Financial Reporting’ as issued by the International Accounting Standards Board (‘IASB’), IAS 34 ‘Interim Financial Reporting’ as adopted by the EU and The Disclosure Guidance and Transparency Rules sourcebook of the UK’s Financial Conduct Authority. These financial statements should be read in conjunction with the company’s published consolidated financial statements for the year ended 30 June 2022, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted by the UK, IFRSs as adopted by the EU and IFRSs as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee. IFRS as adopted by the UK and by the EU differs in certain respects from IFRS as issued by the IASB, but the differences have no impact on the group’s consolidated financial statements for the periods presented. The consolidated financial statements are prepared on a going concern basis under the historical cost convention, unless stated otherwise.
In preparing these condensed consolidated interim financial statements, the significant judgements made by management when applying the group’s accounting policies and the significant areas where estimates were required were the same as those that applied to the consolidated financial statements for the year ended 30 June 2022, with the exception of changes in estimates disclosed in note 3 Exceptional items and note 13 Contingent liabilities and legal proceedings. These condensed consolidated interim financial statements were approved for issue on 25 January 2023.
The financial statements for Diageo plc for the year ending 30 June 2023 will be prepared in accordance with IFRS as adopted by the UK, IFRSs as adopted by the EU and IFRSs, as issued by the IASB, including interpretations issued by the IFRS Interpretations Committee.
Going concern

Management prepared cash flow forecasts which were also sensitised to reflect severe but plausible downside scenarios taking into consideration the group's principal risks. In the base case scenario, management included assumptions for mid-single digit net sales growth, operating margin improvement and global TBA market share growth. In light of the ongoing geopolitical volatility, the base case outlook and plausible downside scenarios incorporated considerations for a prolonged global recession, supply chain disruptions, higher inflation and further geopolitical deterioration. Even under these scenarios, the group’s cash position is still expected to remain strong, as the group's liquidity was protected by issuing $2,000 million of fixed rate dollar denominated bonds in the six months ended 31 December 2022. Mitigating actions, should they be required, are all within management’s control and could include reductions in discretionary spending such as acquisitions and capital expenditure, as well as a temporary suspension of the share buyback programme and dividend payments in the next 12 months, or drawdowns on committed facilities. Having considered the outcome of these assessments, the Directors are comfortable that the company is a going concern for at least 12 months from the date of signing the group's condensed consolidated interim financial statements.

Weighted average exchange rates used in the translation of income statements were US dollar – £1 = $1.18 (2021 – £1 = $1.36) and euro – £1 = €1.16 (2021 – £1 = €1.17). Exchange rates used to translate assets and liabilities at the balance sheet date were US dollar – £1 = $1.2 (31 December 2021 – £1 = $1.35; 30 June 2022 – £1 = $1.21) and euro – £1 = €1.13 (31 December 2021 – £1 = €1.19; 30 June 2022 – £1 = €1.16). The group uses foreign exchange transaction hedges to mitigate the effect of exchange rate movements.

New accounting standards and interpretations

The following amendment to the accounting standards, issued by the IASB and endorsed by the UK and EU, was adopted by the group from 1 July 2022 with no impact on the group’s consolidated results, financial position or disclosures:

–Amendments to IFRS 3 Updating a Reference to the Conceptual Framework
–Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use
–Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract

F- 7
The following standard issued by the IASB has been endorsed by the UK and EU and has not been adopted by the group:

–IFRS 17 – Insurance contracts (effective from the year ending 30 June 2024) is ultimately intended to replace IFRS 4. Based on a preliminary assessment, the group believes that the adoption of IFRS 17 will not have a significant impact on its consolidated results or financial position.

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

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

The Executive Committee considers the business principally from a geographical perspective based on the location of third-party sales and the business analysis is presented by geographical segment. In addition to these geographical selling segments, a further segment reviewed by the Executive Committee is the Supply Chain and Procurement (SC&P) segment, which manufactures products for other group companies and includes production sites in the United Kingdom, Ireland, Italy, Guatemala and Mexico, and comprises the global procurement function.
The group's operations also include the Corporate segment. Corporate costs are in respect of central costs, including finance, marketing, corporate relations, human resources and legal, as well as certain information systems, facilities and employee costs that are not allocable to the geographical segments or to the SC&P.
Diageo uses shared services operations to deliver transaction processing activities for markets and operational entities. These centres are located in India, Hungary, Colombia and the Philippines. These captive business service centres also perform certain central finance activities, including elements of financial planning and reporting, treasury and HR services. The costs of shared services operations are recharged to the regions.
For planning and management reporting purposes, Diageo uses budgeted exchange rates that are set at the prior year's weighted average exchange rate. In order to ensure a consistent basis on which performance is measured through the year, prior period results are also restated to the budgeted exchange rate. Segmental information for net sales and operating profit before exceptional items are reported on a consistent basis with management reporting. The adjustments required to retranslate the segmental information to actual exchange rates and to reconcile it to the group’s reported results are shown in the tables below. The comparative segmental information, prior to retranslation, has not been restated at the current year’s budgeted exchange rates but is presented at the budgeted rates for the respective year.

In addition, for management reporting purposes, Diageo presents the result of acquisitions and disposals completed in the current and prior year separately from the results of the geographical segments. The impact of acquisitions and disposals on net sales and operating profit is disclosed under the appropriate geographical segments in the tables below at budgeted exchange rates.
F- 8
(a) Segmental information for the consolidated income statement
North AmericaEurope Asia
Pacific 		Latin America and CaribbeanAfricaSC&PEliminate
inter-
segment
sales 		Total
operating
segments 		Corporate
and other 		Total
Six months ended 31 December 2022£ million£ million£ million£ million£ million£ million£ million£ million£ million£ million
Sales3,847 3,427 3,170 1,394 1,337 1,330 (1,330)13,175 44 13,219 
Net sales
At budgeted exchange rates(1)
3,092 1,815 1,724 995 916 1,318 (1,289)8,571 44 8,615 
Acquisitions and disposals13 7 35 3 — — — 58 — 58 
SC&P allocation4 18 3 3 1 (29)— — — — 
Retranslation to actual exchange rates408 54 75 99 26 41 (41)662 — 662 
Hyperinflation— 85 — — — — — 85 — 85 
Net sales3,517 1,979 1,837 1,100 943 1,330 (1,330)9,376 44 9,420 
Operating profit/(loss)
At budgeted exchange rates(1)
1,260 630 557 407 212 39 — 3,105 (158)2,947 
Acquisitions and disposals(6)2 5 — — — — 1 — 1 
SC&P allocation9 22 2 5 1 (39)— — — — 
Fair value remeasurements14 (1)— — — — — 13 — 13 
Retranslation to actual exchange rates142 21 23 59 (33)— — 212 1 213 
Hyperinflation— 20 — — — — — 20 — 20 
Operating profit/(loss) before exceptional items1,419 694 587 471 180 — — 3,351 (157)3,194 
Exceptional operating items (26)14 (21)— — — — (33)— (33)
Operating profit/(loss)1,393 708 566 471 180 — — 3,318 (157)3,161 
Non-operating items16 
Net finance charges(292)
Share of after tax results of associates and joint ventures172 
Profit before taxation3,057 
F- 9
North AmericaEurope Asia
Pacific		Latin America and CaribbeanAfricaSC&PEliminate
inter-
segment
sales		Total
operating
segments		Corporate
and other		Total
Six months ended 31 December 2021£ million£ million£ million£ million£ million£ million£ million£ million£ million£ million
Sales3,257 3,178 2,999 1,052 1,244 972 (972)11,730 23 11,753 
Net sales
At budgeted exchange rates(1)
2,959 1,782 1,544 822 888 1,027 (979)8,043 23 8,066 
Acquisitions and disposals18 3 — — — — — 21 — 21 
SC&P allocation6 29 5 6 2 (48)— — — — 
Retranslation to actual exchange rates(19)(62)(18)(9)(22)(7)7 (130)— (130)
Net sales2,964 1,752 1,531 819 868 972 (972)7,934 23 7,957 
Operating profit/(loss)
At budgeted exchange rates(1)
1,288 647 454 333 192 (8)— 2,906 (132)2,774 
Acquisitions and disposals(16)(1)— — — — — (17)— (17)
SC&P allocation10 (23)(3)9 (1)8 — — — — 
Fair value remeasurements5 21 — — — — — 26 — 26 
Retranslation to actual exchange rates8 (31)— (9)(15)— — (47)7 (40)
Operating profit/(loss) before exceptional items1,295 613 451 333 176 — — 2,868 (125)2,743 
Exceptional items — — — — — — — — — — 
Operating profit/(loss)1,295 613 451 333 176 — — 2,868 (125)2,743 
Non-operating items(31)
Net finance charges(180)
Share of after tax results of associates and joint ventures190 
Profit before taxation2,722 
(1)    These items represent the IFRS 8 performance measures for the geographical and SC&P segments.
(i)    The net sales figures for SC&P reported to the Executive Committee primarily comprise inter-segment sales and these are eliminated in a separate column in the above segmental analysis. Apart from sales by the SC&P segment to the geographical segments, inter-segment sales are not material.
(ii)    Approximately 42% of calendar year net sales occurred in the last four months of calendar year 2022.

(b) Category and geographical analysis

Category analysisGeographical analysis
Spirits
£ million		Beer
£ million		Ready to drink
£ million		Other
£ million		Total
£ million		United
States
£ million		India
£ million		Great
Britain
£ million		Rest of
world
£ million		Total
£ million
Six months ended 31 December 2022
Sales(1)
10,925 1,702 478 114 13,219 3,617 1,599 1,163 6,840 13,219 
Six months ended 31 December 2021
Sales(1)
9,680 1,520 418 135 11,753 3,072 1,704 1,204 5,773 11,753 
(1)    The geographical analysis of sales is based on the location of third-party sales.

F- 10
3. Exceptional items


Exceptional items are those that in management’s judgement need to be disclosed separately. Such items are included within the income statement caption to which they relate. Management believes that that separate disclosure of exceptional items and the classification between operating and non-operating items further helps investors to understand the performance of the group. Changes in estimates and reversals in relation to items previously recognised as exceptional are presented consistently as exceptional in the current year.

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

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

Exceptional current and deferred tax items comprise material and unusual or non-recurring items that impact taxation. Examples include direct tax provisions and settlements in respect of prior years and the remeasurement of deferred tax assets and liabilities following tax rate changes.
F- 11
Six months ended 31 December 2022Six months ended 31 December 2021
£ million£ million
Exceptional operating items
Supply chain agility programme (a)(47)— 
Winding down Russian operations (b)14 — 
(33)— 
Non-operating items
Sale of businesses and brands
Archers brand (c)20 — 
USL Popular brands (d)4 — 
United National Breweries (e)2 2 
Guinness Cameroon S.A. (f)(2)— 
Meta Abo Brewery (g)— (33)
Step acquisition - Mr Black (h)(8)— 
16 (31)
Exceptional items before taxation(17)(31)
Items included in taxation (note 5)
Tax on exceptional operating items12 — 
Tax on exceptional non-operating items1 — 
Exceptional taxation57 — 
70 — 
Total exceptional items53 (31)
Attributable to:
Equity shareholders of the parent company52 (31)
Non-controlling interests1 — 
Total exceptional items53 (31)

(a) In the six months ended 31 December 2022, an exceptional charge of £47 million was accounted for in respect of the supply chain agility programme announced in July 2022. With this five-year spanning programme, Diageo expects to strengthen its supply chain, improve its resilience and agility, drive efficiencies, deliver additional productivity savings and make its supply operations more sustainable. Total implementation cost of the programme is expected to be up to £500 million over the five-year period, which will comprise non‐cash items and one‐off expenses, the majority of which are expected to be recognised as exceptional operating items. No restructuring cash expenditure was incurred in the period.

(b) In the six months ended 31 December 2022, Diageo released unutilised provisions of £14 million from the £50 million exceptional charge taken in the year ended 30 June 2022 in respect of winding down its operations in Russia.

(c) On 8 September 2022, Diageo announced the sale of its Archers brand. The transaction resulted in an exceptional gain of £20 million.

(d) On 30 September 2022, Diageo announced the completion of the sale of the Popular brands of its USL business. The aggregate consideration for the disposal was £87 million, the disposed net asset included £31 million net working capital and £22 million brand, and £16 million goodwill was derecognised. The transaction resulted in an exceptional gain of £4 million and the respective share of non-controlling interest amounted to £9 million. Popular brands contributed £225 million to sales and £5 million to operating profit including transaction costs of £4 million in the six months ended 31 December 2022.

F- 12
(e) In the six months ended 31 December 2022, ZAR46 million (£2 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries, the full amount of which represented a non-operating gain (2021 – a gain of £2 million).

(f) On 14 July 2022, Diageo announced the agreement to sell Guinness Cameroon S.A., its brewery in Cameroon, to Castel Group. As regulatory clearance has been received, completion of the sale is highly probable and is expected in the second half of fiscal 23. As a result, the assets and liabilities of the brewing business of Guinness Cameroon S.A. were classified as held for sale. In the six months ended 31 December 2022, transaction costs relating to the prospective sale amounted to £2 million.

(g) In the six months ended 31 December 2021, a loss of £33 million was recognised as a non-operating item attributable to the sale of Meta Abo Brewery Share Company in Ethiopia.

(h) On 29 September 2022, the group acquired that part of the entire issued share capital of Mr Black Spirits Pty Ltd, owner of the Mr Black Australian premium cold brew coffee liqueur, that it did not already own. As a result of Mr Black becoming a subsidiary of the group, in the six months ended 31 December 2022, a loss of £8 million arose, being the difference between the book value of the associate prior to the transaction and its fair value plus transaction costs.




4. Finance income and charges
Six months ended 31 December 2022Six months ended 31 December 2021
£ million£ million
Interest income86 61 
Fair value gain on financial instruments142 58 
Total interest income228 119 
Interest charge on bank loans, bonds and overdrafts(235)(181)
Interest charge on leases(8)(5)
Fair value loss on financial instruments(142)(59)
Interest charge on other borrowings(125)(36)
Total interest charges(510)(281)
Net interest charges(282)(162)
Net finance income in respect of post employment plans in surplus29 10 
Hyperinflation adjustment in respect of Venezuela (a)— 1 
Total other finance income29 11 
Net finance charge in respect of post employment plans in deficit(7)(5)
Foreign exchange revaluation of monetary items in respect of Lebanon (a)— (2)
Unwinding of discounts(5)(6)
Interest charge in respect of direct and indirect tax(17)(8)
Change in financial liability (Level 3)— (7)
Hyperinflation adjustment in respect of Turkey (a)(6)— 
Guarantee fees
(1)— 
Other finance charges(3)(1)
Total other finance charges(39)(29)
Net other finance charges(10)(18)


F- 13
(a) Hyperinflation adjustment

The group applied hyperinflationary accounting for its operations in Turkey, Venezuela and Lebanon.
Turkey has been a hyperinflationary environment, the three-year cumulative inflation for the period ended 31 December 2022 exceeded 100%. Consequently, since March 2022, the group applies hyperinflationary accounting for its Turkish operation. The group’s consolidated financial statements for the six months ended 31 December 2022 include the results and financial position of its Turkish operations restated to the measuring unit current at the end of the period, with hyperinflationary gains and losses in respect of monetary items being reported in finance charges. The inflation rate used by the group is the official rate published by the Turkish Statistical Institute, TurkStat. The movement in the publicly available official price index for the six months ended 31 December 2022 was 15%.

Venezuela is a hyperinflationary economy where the government maintains a regime of strict currency controls with multiple foreign currency rate systems. The exchange rate used to translate the results of the group’s Venezuelan operations was VES/£ 1,540 for the six months ended 31 December 2022 (2021 – VES/£593). These rates reflect management’s estimate of the exchange rate considering inflation and the most appropriate official exchange rate. Movement in the price index for the six months ended 31 December 2022 was 105% (2021 – 158%). The inflation rate used by the group is provided by an independent valuer because no reliable, officially published rate is available for Venezuela.
The following table presents the contribution of the group’s Venezuelan operations to the consolidated income statement, cash flow statement and net assets for the six months ended 31 December 2022 and 31 December 2021 and with the amounts that would have resulted if the official reference exchange rate had been applied:

Six months ended 31 December 2022Six months ended 31 December 2021
At estimated exchange rateAt official reference exchange rateAt estimated
exchange rate		At official reference
exchange rate
1,540 VES/£
21 VES/£
593 VES/£
6 VES/£
£ million£ million£ million£ million
Net sales— 7 — 8 
Operating profit— 2 — 2 
Other finance income - hyperinflation adjustment— — 1 120 
Net cash outflow from operating activities— (1)— (3)
Net assets20 1,467 37 3,501 

Sterling amounts presented at the official reference exchange rate are results of simple mathematical conversion.

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

5. Taxation

For the six months ended 31 December 2022, the tax charge of £650 million (2021 – £634 million) comprises a UK tax charge of £122 million (2021 – £116 million) and a foreign tax charge of £528 million (2021 – £518 million).

For the six months ended 31 December 2022, income tax expense was recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year applied to the pre-tax income of the interim period in line with the relevant accounting standard.
Included in the tax charge of £650 million in the six months ended 31 December 2022 is an exceptional tax credit of £70 million, which includes a tax credit of £57 million in respect of the deductibility of fees paid to Diageo plc for guaranteeing externally issued debt of US group entities. Following engagement with the tax authorities, guarantee fees for the periods ended 30 June 2012 to 30 June 2022 will be fully deductible.

The group has a number of ongoing tax audits worldwide for which provisions are recognised in line with the relevant accounting standard taking into account best estimates and management’s judgements concerning the ultimate outcome of the tax audit. For the six months ended 31 December 2022, ongoing audits that are provided for individually are not expected to result in a material tax liability. The current tax asset of £166 million (30 June 2022 – £149 million) and tax liability of £266 million (30 June 2022 – £252 million) include £169 million (30 June 2022 – £156 million) of provisions for tax uncertainties.

F- 14
On 20 July 2022, HM Treasury released draft legislation to introduce the OECD's Pillar Two Model Rules into UK law that would commence for accounting periods starting on or after 31 December 2023 (i.e. year ending 30 June 2025 for Diageo). Diageo is reviewing available legislation and monitoring the status of implementation outside the UK to understand the potential impact on the group.

The tax rate before exceptional items for the six months ended 31 December 2022 was 23.4% compared with 23.0% for the six months ended 31 December 2021.

6. Inventories
31 December 202230 June 202231 December 2021
£ million£ million
£ million
Raw materials and consumables598 489 401 
Work in progress166 86 68 
Maturing inventories5,477 5,229 4,801 
Finished goods and goods for resale1,311 1,290 965 
7,552 7,094 6,235 

7. Net borrowings
31 December 202230 June 202231 December 2021
£ million£ million£ million
Borrowings due within one year and bank overdrafts(2,305)(1,522)(1,184)
Borrowings due after one year(15,304)(14,498)(12,693)
Fair value of foreign currency forwards and swaps534 356 122 
Fair value of interest rate hedging instruments(422)(283)4 
Lease liabilities(438)(475)(360)
(17,935)(16,422)(14,111)
Cash and cash equivalents2,766 2,285 1,780 
(15,169)(14,137)(12,331)

8. Reconciliation of movement in net borrowings
Six months ended 31 December 2022Six months ended 31 December 2021
£ million£ million
Net increase/(decrease) in cash and cash equivalents before exchange589 (888)
Net (increase)/decrease in bonds and other borrowings(1)
(1,508)729 
Net increase in net borrowings from cash flows(919)(159)
Exchange differences on net borrowings(50)(31)
Other non-cash items(2)
(63)(32)
Net borrowings at beginning of the period(14,137)(12,109)
Net borrowings at end of the period(15,169)(12,331)
(1)    In the six months ended 31 December 2022, net increase in bonds and other borrowings excludes £2 million cash outflow in respect of derivatives designated in forward point hedges (2021 – £2 million).
(2)    In the six months ended 31 December 2022, other non-cash items were principally in respect of the reclassification of cash and cash equivalents in Guinness Cameroon S.A. to assets and liabilities held for sale. In the six months ended 31 December 2021, other non-cash items were principally in respect of additional leases entered into during the period.

In the six months ended 31 December 2022, the group issued bonds of $2,000 million (£1,788 million- net of discount and fee) consisting of $500 million 5.2% fixed rate notes due 2025, $750 million 5.3% fixed rate notes due 2027 and $750 million 5.5% fixed rate notes due 2033, and repaid bonds of $300 million (£254 million). In the six months ended 31 December 2021, the group repaid bonds of €900 million (£769 million).

All bonds and commercial papers issued by Diageo plc's 100% owned subsidiaries are fully and unconditionally guaranteed by Diageo plc.
F- 15
9. Financial instruments
Fair value measurements of financial instruments are presented through the use of a three-level fair value hierarchy that prioritises the valuation techniques used in fair value calculations.

The group maintains policies and procedures to value instruments using the most relevant data available. If multiple inputs that fall into different levels of the hierarchy are used in the valuation of an instrument, the instrument is categorised on the basis of the most subjective input.

Foreign currency forwards and swaps, cross currency swaps and interest rate swaps are valued using discounted cash flow techniques. These techniques incorporate inputs at levels 1 and 2, such as foreign exchange rates and interest rates. These market inputs are used in the discounted cash flow calculation incorporating the instrument’s term, notional amount and discount rate, and taking credit risk into account. As significant inputs to the valuation are observable in active markets, these instruments are categorised as level 2 in the hierarchy.

Other financial liabilities include a put option, which does not have an expiry date, held by Industrias Licoreras de Guatemala (ILG) to sell the remaining 50% equity stake in Rum Creation & Products Inc., the owner of the Zacapa rum brand, to Diageo. The liability is fair valued and as at 31 December 2022, an amount of £217 million (30 June 2022 – £216 million) is recognised as a liability with changes in the fair value of the put option included in retained earnings. As the valuation of this option uses assumptions not observable in the market, it is categorised as level 3 in the hierarchy. As at 31 December 2022, because it is unknown when or if ILG will exercise the option, the liability is measured as if the exercise date is on the last day of the current financial year considering forecast future performance. The option is sensitive to reasonably possible changes in assumptions. If the option were to be exercised as at 30 June 2024, the fair value of the liability would increase by approximately £47 million.

Included in other financial liabilities, the contingent consideration on acquisition of businesses represents the present value of payments up to £406 million linked to certain performance targets which are expected to be paid over the next eight years.

There were no significant changes in the measurement and valuation techniques, or significant transfers between the levels of the financial assets and liabilities in the six months ended 31 December 2022.

The group’s financial assets and liabilities measured at fair value are categorised as follows:
31 December 202230 June 202231 December 2021
£ million£ million£ million
Derivative assets682 480 381 
Derivative liabilities(552)(456)(237)
Valuation techniques based on observable market input (Level 2)130 24 144 
Financial assets - other172 184 167 
Financial liabilities - other(575)(587)(483)
Valuation techniques based on unobservable market input (Level 3)(403)(403)(316)

In the six months ended 31 December 2022 and 31 December 2021, the decrease in financial assets - other of £12 million (2021 – £29 million) is principally in respect of the conversion of preference shares to equity in Mr Black.

F- 16
The movements in level 3 instruments, measured on a recurring basis, are as follows:

 Zacapa
financial
liability
Contingent consideration recognised on acquisition of businesses(1)
Zacapa
financial
liability
Contingent consideration recognised on acquisition of businesses(1)
Six months ended 31 December 2022Six months ended 31 December 2022Six months ended 31 December 2021Six months ended 31 December 2021
£ million£ million£ million£ million
At the beginning of the period(216)(371)(149)(429)
Net gains/(losses) included in the income statement— 12 (7)18 
Net (losses)/gains included in exchange in other comprehensive income(2)(2)(4)(9)
Net losses included in retained earnings(4)— (12)— 
Acquisitions— (5)— — 
Settlement of liabilities5 8 3 106 
At the end of the period(217)(358)(169)(314)
(1)    Included in the balance at 31 December 2022 is £145 million in respect of the acquisition of Aviation Gin and Davos Brands (2021 – £163 million), £60 million in respect of the acquisition of 21Seeds (2021 – £nil), and £57 million in respect of the acquisition of Lone River Ranch Water (2021 – £51 million).

The carrying amount of the group’s financial assets and liabilities is generally the same as their fair value apart from borrowings. At 31 December 2022, the fair value of gross borrowings (excluding lease liabilities and the fair value of derivative instruments) was £16,716 million, and the carrying value was £17,609 million (30 June 2022 – £15,628 million and £16,020 million, respectively).

10. Dividends and other reserves
Six months ended 31 December 2022Six months ended 31 December 2021
Amounts recognised as distributions to equity shareholders£ million£ million
Final dividend for the year ended 30 June 2022 of 46.82 pence per share
(2021 - 44.59 pence)
1,066 1,040 

An interim dividend of 30.83 pence per share (2021 – 29.36 pence) was approved by the Board of Directors on 25 January 2023. As the approval was after the balance sheet date, it was not included as a liability.

Other reserves of £2,193 million at 31 December 2022 (2021 – £1,551 million) include a capital redemption reserve of £3,224 million (2021 – £3,206 million), a hedging reserve surplus of £96 million (2021 – £61 million surplus) and an exchange reserve deficit of £1,127 million (2021 – £1,716 million deficit). Currency basis spreads included in the hedging reserve represent the cost of hedging arising as a result of imperfections of foreign exchange markets. Exclusion of currency basis spreads would result in a £22 million (2021 – £22 million) credit to hedging reserve.


F- 17
11. Acquisition of businesses

Fair value of assets and liabilities acquired and cash consideration paid in respect of acquisition of subsidiaries in the six months ended 31 December 2022 were as follows:
Acquisitions
£ million
Brands45 
Property, plant and equipment24 
Inventories24 
Other working capital1 
Deferred tax(3)
Cash1 
Fair value of assets and liabilities92 
Goodwill arising on acquisition22 
Step acquisition(10)
Consideration payable104 
Satisfied by:
Cash consideration paid(96)
Contingent consideration payable(5)
Deferred consideration payable(3)
(104)
Diageo completed two acquisitions in the six months ended 31 December 2022: (i) on 29 September 2022, the acquisition of that part of the entire issued share capital of Mr Black Spirits Pty Ltd, owner of the Mr Black Australian premium cold brew coffee liqueur, that it did not already own; and (ii) on 2 November 2022, the acquisition of the entire issued share capital of Balcones Distilling, a Texas craft distiller and one of the leading producers of American single malt whisky in the United States. The fair values of assets and liabilities acquired in respect of the two acquisitions are provisional and will be finalised in the year ending 30 June 2023.

Cash consideration paid in respect of the acquisition of businesses in the six months ended 31 December 2022 were as follows:
Consideration
£ million
Acquisitions in the year
Subsidiaries
Cash consideration paid(96)
Cash acquired1 
Investments in associates
Cash consideration paid(3)
Prior year acquisitions
Subsidiaries
Contingent consideration paid(8)
Other consideration(10)
Investments in associates
Capital injection(28)
Net cash outflow on acquisition of businesses(144)



F- 18
12. Assets and liabilities held for sale


31 December 202230 June 2022
£ million£ million
Intangible assets— 165 
Property, plant and equipment103 12 
Other investments— 1 
Inventories19 21 
Trade and other receivables13 23 
Cash47 — 
Assets held for sale182 222 
Trade and other payables(61)(18)
Corporation tax(2)(6)
Deferred tax(5)(35)
Provisions(2)— 
Leases(2)(2)
Post employment benefit liabilities(4)— 
Liabilities held for sale(76)(61)
Total106 161 
Assets and liabilities held for sale at 31 December 2022 consisted of Guinness Cameroon S.A., and as at 30 June 2022 assets and liabilities held for sale consisted of the Windsor business in Korea and USL's Popular brands. As at 31 December 2021 there were no assets and liabilities classified as held for sale.
On 14 July 2022, Diageo announced the agreement to sell Guinness Cameroon S.A., its brewery in Cameroon, to Castel Group for £389 million. On completion, Castel will take over the production and nationwide distribution of Guinness in Cameroon under a licence and royalty agreement. The sale is considered to be highly probable as at 31 December 2022 and it is expected to be completed in the year ending 30 June 2023. Consequently, the impacted assets and liabilities were classified as held for sale at 31 December 2022 and measured at cost as the lower of cost and fair value less cost of disposal.

On 27 September 2022, Diageo announced the termination of the conditional agreement to sell its Windsor business in Korea. Consequently, the recoverable assets and liabilities attributable to the business were reclassified out of held for sale.

On 30 September 2022, Diageo announced the completion of the sale of the Popular brands of its USL business. The assets and liabilities attributable to the business were disposed from held for sale. The aggregate consideration for the disposal was £87 million, resulting in an exceptional gain of £4 million.

13. Contingent liabilities and legal proceedings

(a) Guarantees and related matters

As of 31 December 2022, the group has no material unprovided guarantees or indemnities in respect of liabilities of third parties.

(b) Acquisition of USL shares from UBHL and related proceedings in relation to the USL transaction

On 4 July 2013, Diageo completed its acquisition, under a share purchase agreement with United Breweries (Holdings) Limited (UBHL) and various other sellers (the SPA), of shares representing 14.98% in USL, including shares representing 6.98% from UBHL. The SPA was signed on 9 November 2012 as part of the transaction announced by Diageo in relation to USL on that day (the Original USL Transaction). Following a series of further transactions, as of 31 December 2022, Diageo has a 55.94% investment in USL (excluding 2.38% owned by the USL Benefit Trust).

Prior to the acquisition from UBHL on 4 July 2013, the High Court of Karnataka (High Court) had granted leave to UBHL under the Indian Companies Act 1956 (the Leave Order) to enable the sale by UBHL to Diageo to take place (the UBHL Share Sale) notwithstanding the continued existence of certain winding-up petitions that were pending against UBHL on the date of
F- 19
the SPA. At the time of the completion of the UBHL Share Sale, the Leave Order remained subject to review on appeal. However, as stated by Diageo at the time of closing, it was considered unlikely that any appeal process in respect of the Leave Order would definitively conclude on a timely basis and, accordingly, Diageo waived the conditionality under the SPA relating to the absence of insolvency proceedings in relation to UBHL and acquired the 6.98% stake in USL from UBHL at that time.

Following appeal and counter-appeal in respect of the Leave Order, this matter is now before the Supreme Court of India which has issued an order that the status quo be maintained with regard to the UBHL Share Sale pending a hearing on the matter before it. Following a number of adjournments, the next date for a substantive hearing is yet to be fixed.

In separate proceedings, the High Court passed a winding-up order against UBHL on 7 February 2017, and appeals filed by UBHL against that order have since been dismissed, initially by a division bench of the High Court and subsequently by the Supreme Court of India.

Diageo continues to believe that the acquisition price of INR 1,440 per share paid to UBHL for the USL shares is fair and reasonable as regards UBHL, UBHL’s shareholders and UBHL’s secured and unsecured creditors. However, adverse results for Diageo in the proceedings referred to above could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 6.98% stake in USL acquired from UBHL. Diageo believes, including by reason of its rights under USL’s articles of association to nominate USL’s CEO and CFO and the right to appoint, through USL, a majority of the directors on the boards of USL’s subsidiaries as well as its ability as promoter to nominate for appointment up to two-thirds of USL’s directors for so long as the chairperson of USL is an independent director, that it would remain in control of USL and would continue to be able to consolidate USL as a subsidiary for accounting purposes regardless of the outcome of this litigation.

There can be no certainty as to the outcome of the existing or any further related legal proceedings or the time frame within which they would be concluded.

(c) Continuing matters relating to Dr Vijay Mallya and affiliates

On 25 February 2016, Diageo and USL each announced that they had entered into arrangements with Dr Mallya under which he had agreed to resign from his position as a director and as chairman of USL and from his positions in USL’s subsidiaries.

Diageo’s agreement with Dr Mallya (the February 2016 Agreement) provided for a payment of $75 million (£63 million) to Dr Mallya over a five-year period of which $40 million (£33 million) was paid on signing of the February 2016 Agreement with the balance being payable in equal instalments of $7 million (£6 million) a year over five years (2017-2021). All payments were subject to and conditional on Dr Mallya’s compliance with the agreement. The February 2016 Agreement also provided for the release of Dr Mallya’s personal obligations to indemnify Diageo Holdings Netherlands B.V. (DHN) in respect of its earlier liability ($141 million (£118 million)) under a backstop guarantee of certain borrowings of Watson Limited (Watson) (a company affiliated with Dr Mallya).

On account of various breaches and other provisions of agreements between Dr Mallya and persons connected with him and Diageo and/or USL, Diageo did not make the five instalment payments due during the five-year period between 2017 and 2021. In addition, Diageo has also demanded that Dr Mallya repay the $40 million (£33 million) paid by Diageo in February 2016 and sought compensation for various losses incurred by the relevant members of the Diageo group.
On 16 November 2017, Diageo and other relevant members of the Diageo group commenced claims in the High Court of Justice in England and Wales (the English High Court) against Dr Mallya in relation to these matters. At the same time DHN also commenced claims in the English High Court against Dr Mallya, his son Sidhartha Mallya, Watson and Continental Administration Services Limited (CASL) (a company affiliated with Dr Mallya and understood to hold assets on trust for him and certain persons affiliated with him) for in excess of $142 million (£118 million) (plus interest) in relation to Watson’s liability to DHN in respect of its borrowings referred to above and the breach of associated security documents. Dr Mallya, Sidhartha Mallya and the relevant affiliated companies filed a defence to these claims, and Dr Mallya also filed a counterclaim for payment of the two instalment payments that had by that time been withheld as described above.
Diageo continues to prosecute its claims and to defend the counterclaim. As part of these proceedings, Diageo and the other relevant members of its group filed an application for strike out and/or summary judgement in respect of certain aspects of the defence filed by Dr Mallya and the other defendants, including their defence in relation to Watson and CASL’s liability to repay DHN. The application was successful resulting in Watson being ordered to pay approximately $135 million (£113 million) plus various amounts in respect of interest to DHN, with CASL being held liable as co-surety for 50% of any such amount unpaid by Watson. These amounts were, contrary to the relevant orders, not paid by the relevant deadlines and Watson and CASL’s remaining defences in the proceedings were struck out. Diageo and DHN have accordingly sought asset disclosure and are considering further enforcement steps against Watson and CASL, both in the United Kingdom and in other jurisdictions where they are present or hold assets.
F- 20
A trial of the remaining elements of these claims was due to commence on 21 November 2022. However, on 26 July 2021 Dr Mallya was declared bankrupt by the English High Court pursuant to a bankruptcy petition presented by a consortium of Indian banks. Diageo and the relevant members of its group have informed the Trustee in Bankruptcy of their position as creditors in the bankruptcy and have engaged with the Trustee regarding their claims and the status of the current proceedings. An appeal by Dr Mallya against his bankruptcy (and an appeal by the bank consortium against orders made in the course of the bankruptcy proceedings) are pending. In light of the uncertainty posed by the ongoing bankruptcy proceedings, the trial of Diageo’s claim has been relisted to take place in February 2024.
At this stage, it is not possible to assess the extent to which the various ongoing proceedings related to the bankruptcy will affect the remaining elements of the claims by Diageo and the relevant members of its group.
Upon completion of an initial inquiry in April 2015 into past improper transactions which identified references to certain additional parties and matters, USL carried out an additional inquiry into these transactions (Additional Inquiry) which was completed in July 2016. The Additional Inquiry, prima facie, identified transactions indicating actual and potential diversion of funds from USL and its Indian and overseas subsidiaries to, in most cases, entities that appeared to be affiliated or associated with Dr Mallya. All amounts identified in the Additional Inquiry have been provided for or expensed in the financial statements of USL or its subsidiaries in the respective prior periods. USL has filed recovery suits against relevant parities identified pursuant to the Additional Inquiry.
Further, at this stage, it is not possible for the management of USL to estimate the financial impact on USL, if any, arising out of potential non-compliance with applicable laws in relation to such fund diversions.

(d) Other matters in relation to USL

In respect of the Watson backstop guarantee arrangements, the Securities and Exchange Board of India (SEBI) issued a notice to Diageo on 16 June 2016 that if there is any net liability incurred by Diageo (after any recovery under relevant security or other arrangements, which matters remain pending) on account of the Watson backstop guarantee, such liability, if any, would be considered to be part of the price paid for the acquisition of USL shares under the SPA which formed part of the Original USL Transaction and that, in that case, additional equivalent payments would be required to be made to those shareholders (representing 0.04% of the shares in USL) who tendered in the open offer made as part of the Original USL Transaction. Diageo believes that the Watson backstop guarantee arrangements were not part of the price paid or agreed to be paid for any USL shares under the Original USL Transaction and that therefore SEBI's decision was not consistent with applicable law, and Diageo appealed against it before the Securities Appellate Tribunal, Mumbai (SAT). On 1 November 2017, SAT issued an order in respect of Diageo’s appeal in which, amongst other things, it observed that the relevant officer at SEBI had neither considered Diageo’s earlier reply nor provided Diageo with an opportunity to be heard, and accordingly directed SEBI to pass a fresh order after giving Diageo an opportunity to be heard. Following SAT’s order, Diageo made its further submissions in the matter, including at a personal hearing before a Deputy General Manager of SEBI. On 26 June 2019, SEBI issued an order reiterating the directions contained in its previous notice dated 16 June 2016. As with the previous SEBI notice, Diageo believes that SEBI's latest order is not consistent with applicable law and has filed another appeal before the SAT against the order. Diageo's appeal is currently pending. Diageo is unable to assess if the notices or enquiries referred to above will result in enforcement action or, if this were to transpire, to quantify meaningfully the possible range of loss, if any, to which any such action might give rise to if determined against Diageo or USL.

(e) USL’s dispute with IDBI Bank Limited

Prior to the acquisition by Diageo of a controlling interest in USL, USL had prepaid a term loan of INR 6,280 million (£63 million) taken through IDBI Bank Limited (IDBI), an Indian bank, which was secured on certain fixed assets and brands of USL, as well as by a pledge of certain shares in USL held by the USL Benefit Trust (of which USL is the sole beneficiary). The maturity date of the loan was 31 March 2015. IDBI disputed the prepayment, following which USL filed a writ petition in November 2013 before the High Court of Karnataka (the High Court) challenging the bank’s actions.

Following the original maturity date of the loan, USL received notices from IDBI seeking to recall the loan, demanding a further sum of INR 459 million (£5 million) on account of the outstanding principal, accrued interest and other amounts, and also threatening to enforce the security in the event that USL did not make these further payments. Pursuant to an application filed by USL before the High Court in the writ proceedings, the High Court directed that, subject to USL depositing such further amount with the bank (which amount was duly deposited by USL), the bank should hold the amount in a suspense account and not deal with any of the secured assets including the shares until disposal of the original writ petition filed by USL before the High Court.
On 27 June 2019, a single judge bench of the High Court issued an order dismissing the writ petition filed by USL, amongst other things, on the basis that the matter involved an issue of breach of contract by USL and was therefore not maintainable in exercise of the court’s writ jurisdiction. USL filed an appeal against this order before a division bench of the High Court, which on 30 July 2019 issued an interim order directing the bank to not deal with any of the secured assets until the next date of
F- 21
hearing. On 13 January 2020, the division bench of the High Court admitted the writ appeal and extended the interim stay. This appeal is currently pending. Based on the assessment of USL’s management supported by external legal opinions, USL continues to believe that it has a strong case on the merits and therefore continues to believe that the secured assets will be released to USL and the aforesaid amount of INR 459 million (£5 million) remains recoverable from IDBI.

(f) Tax

The international tax environment has seen increased scrutiny and rapid change over recent years bringing with it greater uncertainty for multinationals. Against this backdrop, Diageo has been monitoring developments and continues to engage transparently with the tax authorities in the countries where Diageo operates to ensure that the group manages its arrangements on a sustainable basis.
The group operates in a large number of markets with complex tax and legislative regimes that are open to subjective interpretation. In the context of these operations, it is possible that tax exposures which have not yet materialised (including those which could arise as a result of tax assessments) may result in losses to the group. In the circumstances where tax authorities have raised assessments, challenging interpretations which may lead to a possible material outflow, these have been included as contingent liabilities. Where the potential tax exposures are known to us and have not been assessed, the group considers disclosure of such matters taking into account their size and nature, relevant regulatory requirements and potential prejudice of the future resolution or assessment thereof.

Diageo has a large number of ongoing tax cases in Brazil and India. Since assessing an accurate value of contingent liabilities in these markets requires a high degree of judgement, contingent liabilities are disclosed on the basis of the current known possible exposure from tax assessment values. While not all of these cases are individually significant, the current aggregate known possible exposure from tax assessment values is up to approximately £568 million for Brazil and up to approximately £131 million for India. The group believes that the likelihood that the tax authorities will ultimately prevail is lower than probable but higher than remote. Due to the fiscal environment in Brazil and in India, the possibility of further tax assessments related to the same matters cannot be ruled out and the judicial processes may take extended periods to conclude. Based on its current assessment, Diageo believes that no provision is required in respect of these issues.

Payments were made under protest in India in respect of the periods 1 April 2006 to 31 March 2019 in relation to tax assessments where the risk is considered to be remote or possible. These payments have to be made in order to be able to challenge the assessments and as such have been recognised as a receivable in the group's balance sheet. The total amount of payments under protest recognised as a receivable as at 31 December 2022 is £117 million (corporate tax payments of £105 million and indirect tax payments of £12 million).

(g) Information request

In 2021, Diageo received an information request from the US Securities and Exchange Commission relating to Diageo’s business operations in certain markets and to its policies, procedures and compliance environment. Diageo is responding to this information request but is currently unable to assess whether the inquiry will evolve into any enforcement action or, if this were to transpire, to quantify meaningfully the possible loss or range of loss, if any, to which any such action might give rise.

(h) Other

The group has extensive international operations and routinely makes judgements on a range of legal, customs and tax matters which are incidental to the group's operations. Some of these judgements are or may become the subject of challenges and involve proceedings, the outcome of which cannot be foreseen. In particular, the group is currently a defendant in various customs proceedings that challenge the declared customs value of products imported by certain Diageo companies. Diageo continues to defend its position vigorously in these proceedings.

Save as disclosed above, neither Diageo, nor any member of the Diageo group, is or has been engaged in, nor (so far as Diageo is aware) is there pending or threatened by or against it, any legal or arbitration proceedings which may have a significant effect on the financial position of the Diageo group.



F- 22
14. Related party transactions

The group’s significant related parties are its associates, joint ventures, key management personnel and post employment benefit plans. In October 2022 Diageo plc provided an interim credit facility of £1.0 billion to Diageo Pension Trust Limited, split into two separate agreements of £150 million for the Diageo Lifestyle Plan and £850 million for the Diageo Pension Scheme, to support temporary liquidity challenges until 29 December 2022. Subsequently, the Diageo Pension Scheme agreement was extended to 29 June 2023. At 31 December 2022, the outstanding balance due from the scheme under the credit facility was £nil. The movements in the credit facility are included in movements in loans and other investments on the consolidated statement of cash flows.

There were no transactions with related parties during the six months ended 31 December 2022 on terms other than those that prevail in arm’s length transactions.

15. Post balance sheet events

On 17 January 2023, Diageo announced that it had reached an agreement to acquire Don Papa Rum, a super-premium dark rum from the Philippines. The upfront consideration is €260 million (£231 million) with further potential consideration of up to €178 million (£158 million) through to 2028 subject to performance, reflecting the brand’s expected growth potential.
F- 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.
Diageo plc
(Registrant)

/s/ Lavanya Chandrashekar
Name: Lavanya Chandrashekar
Title: Chief Financial Officer
31 January 2023


Diageo (NYSE:DEO)
Historical Stock Chart
Von Mär 2024 bis Apr 2024 Click Here for more Diageo Charts.
Diageo (NYSE:DEO)
Historical Stock Chart
Von Apr 2023 bis Apr 2024 Click Here for more Diageo Charts.