Market Overview - Volatility has returned to Wall Street, with major indexes losing gains over the past couple of months due to uncertainty over the next rate cut and the impact of President Trump's tariffs on consumer sentiment [1][8] - Consumer sentiment fell in July, with the University of Michigan's preliminary consumer sentiment index dropping to 58.6% from 61.7% in June, missing analysts' expectations [4][10] Consumer Sentiment and Inflation - Households are expecting prices of goods to rise due to higher tariffs, leading to a decline in consumer sentiment [5][10] - Short-term inflation expectations worsened, with the projected 12-month inflation outlook rising to 4.9% in July from 4.5% in June, and the five-year inflation outlook increasing to 3.9% from 3.4% [5] Investment Recommendations - Given the current market conditions, it may be wise to focus on safe-haven stocks such as utilities and consumer staples, with Fortis, Inc. (FTS), New Jersey Resources Corporation (NJR), ONE Gas, Inc. (OGS), and Diageo plc (DEO) highlighted as attractive options [2][10] - These recommended stocks are categorized as low-beta stocks (beta greater than 0 but less than 1) with high dividend yields and favorable Zacks Ranks [3] Company Profiles Fortis, Inc. - Engaged in the electric and gas utility business, operating primarily in Canada, the United States, and the Caribbean [9] - Expected earnings growth rate of 4.6% for the current year, with a Zacks Rank 2 and a current dividend yield of 3.51% [11] New Jersey Resources Corporation - An energy services holding company providing natural gas and clean energy services [12] - Expected earnings growth rate of 12% for the current year, with a Zacks Rank 1 and a current dividend yield of 3.83% [13] ONE Gas, Inc. - A regulated natural gas distribution utility serving over 2.3 million customers in Oklahoma, Kansas, and Texas [14] - Expected earnings growth rate of 10.5% for the current year, with a Zacks Rank 2 and a current dividend yield of 3.54% [14] Diageo plc - Operates in approximately 180 countries, producing and distributing spirits, wine, and beer [15] - Expected earnings growth rate of 3.5% for the current year, with a Zacks Rank 2 and a current dividend yield of 2.87% [16]

Let's get to Matt Dash with Jim before we get to the opening bell. >> In this country, we once had prohibition. I'm beginning to think we now have self-prohibition.There's a Gallup poll talking about American self-reported drinking down to 54% after consecutive declines believe moderate drinking is bad for health. The Gen Z's aren't drinking. I have to tell you that this is another reason to stay away from the stock of Diagio.Beer remains America's favorite booth. So I'm not going to go into beer stocks alt ...

[Strategic Report](index=8&type=section&id=Strategic%20Report) [Chair's Statement](index=9&type=section&id=Chair's%20statement) The Chair reflects on a challenging year, noting 1.7% organic net sales growth, a flat dividend, and the launch of the 'Accelerate' program, while highlighting moderation as a key opportunity and leadership changes Fiscal 2025 Performance Highlights | Metric | Value/Change | | :--- | :--- | | Organic Net Sales Growth | 1.7% | | Organic Volume Growth | 0.9% | | Positive Price/Mix | 0.8% | | Full Year Dividend | 103.48 cents per share (flat) | - The **'Accelerate' program** was launched to strengthen the business through disciplined cost management, cash delivery, and improvements to the operating model and capabilities[45](index=45&type=chunk) - Diageo views the consumer trend of moderation as a significant opportunity, leveraging its position as the **world's largest non-alcoholic spirits player** and expanding its portfolio with acquisitions like Ritual Beverage Company[48](index=48&type=chunk)[49](index=49&type=chunk) - Significant leadership changes occurred, including the stepping down of CEO **Debra Crew** and the initiation of a comprehensive search for her successor. **Nik Jhangiani** was appointed Interim CEO[53](index=53&type=chunk)[54](index=54&type=chunk) [Chief Executive's Statement](index=11&type=section&id=Chief%20Executive's%20statement) The Interim CEO reports 1.7% organic net sales growth and a 0.7% organic operating profit decline in a challenging market, highlighting strong Tequila and Guinness performance, portfolio management, and 'Accelerate' program progress Fiscal 2025 Financial Results | Metric | Value/Change | | :--- | :--- | | Organic Net Sales Growth | +1.7% | | Organic Operating Profit | -0.7% | | Net Cash Flow from Operating Activities | $4.3 billion | | Free Cash Flow | $2.7 billion | - Tequila organic net sales grew **18%**, with the Don Julio brand performing strongly. Guinness also continued its remarkable growth, becoming the number one beer in football occasions in Great Britain[79](index=79&type=chunk)[81](index=81&type=chunk) - The company made **selective disposals** of non-core brands (Pampero, Safari, Cacique) and shifted to an **asset-light model** in Africa with disposals of shareholdings in Guinness Nigeria, Guinness Ghana, and Seychelles Breweries[81](index=81&type=chunk) Accelerate Program Targets | Target Area | Goal | | :--- | :--- | | **Consistent Cash Delivery** | c. $3 billion free cash flow per annum from fiscal 26 | | **Cost Savings** | c. $625 million over the next three years | | **Deleveraging** | Within 2.5-3.0x net debt to adjusted EBITDA no later than fiscal 28 | [Performance Highlights](index=12&type=section&id=Performance%20highlights) Diageo's fiscal 2025 highlights include $20.2 billion reported net sales, 2% organic growth, a 28% reported operating profit decline, $2.7 billion free cash flow, and progress in ESG metrics like underage drinking education and leadership diversity Fiscal 2025 Group Financial Performance | Metric | 2025 Value | 2024 Value | Organic Movement | | :--- | :--- | :--- | :--- | | Reported Net Sales | $20,245 million | $20,269 million | 2% | | Reported Operating Profit | $4,335 million | $6,001 million | -1% | | Free Cash Flow | $2,748 million | $2,609 million | N/A | | Earnings Per Share (EPS) | 105.9 cents | 173.2 cents | N/A | | Total Recommended Dividend | 103.48 cents | 103.48 cents | N/A | Fiscal 2025 Non-Financial Performance | Metric | 2025 Value | 2024 Value | | :--- | :--- | :--- | | People educated on underage drinking | 2.0 million | 2.2 million | | Female leaders globally | 43% | 44% | | Ethnically diverse leaders globally | 46% | 46% | | Water efficiency change vs FY20 | -15.8% | -12.9% | | GHG emissions change vs FY22 | -18.8% | -14.4% | - The 'Accelerate' program was launched to deliver consistent performance, targeting c.**$625 million** in cost savings over three years and returning to a leverage ratio of **2.5x-3.0x** no later than fiscal 28[106](index=106&type=chunk)[107](index=107&type=chunk) [Investment Case](index=14&type=section&id=Investment%20case) Diageo presents a strong investment case based on attractive long-term industry fundamentals, including spirits versatility, premiumization, and a 4.5% global TBA share, leveraging its 1 position in international spirits, 13 billion-dollar brands, and diversified geographical footprint, all supported by the 'Accelerate' program - The long-term value growth in spirits is driven by premiumization, with the super-premium-plus price tier growing over **50% faster** than other tiers in the last 10 years[122](index=122&type=chunk) - Diageo's competitive advantages include being the **1 player in international spirits**, possessing **13 billion-dollar brands**, and having a diversified geographical footprint that reduces dependency on any single region[124](index=124&type=chunk)[125](index=125&type=chunk) - The **'Accelerate' program** underpins the company's reshaped priorities, aiming to build a more agile operating model with clear targets for cash delivery, cost efficiency, and deleveraging[128](index=128&type=chunk)[129](index=129&type=chunk) [Market Dynamics](index=15&type=section&id=Market%20dynamics) Near-term industry pressures are cyclical, but long-term fundamentals remain compelling with a growing legal purchase age population and spirits gaining share, while moderation is a significant opportunity despite monitoring potential headwinds like cannabis and GLP-1s - Long-term industry fundamentals are considered attractive, with **600 million** new legal-purchase-age consumers expected to enter the market by 2035[136](index=136&type=chunk) - Potential headwinds such as cannabis and GLP-1 weight-loss drugs are being monitored, but recent US research indicates they have not yet shown significant disruption to spirits consumption[137](index=137&type=chunk) - Moderation is viewed as a **significant opportunity**. The versatility of spirits and Diageo's leadership in non-alcoholic options like Seedlip, Ritual, and Guinness 0.0 position the company to shape the future of this trend[138](index=138&type=chunk)[139](index=139&type=chunk) [Our Strategy](index=17&type=section&id=Our%20strategy) Diageo's strategy focuses on unleashing brand power, leading consumer trends like moderation and luxury, and achieving operational excellence through the 'Accelerate' program, with specific goals for whisk(e)y, tequila, and Guinness - The strategy focuses on key categories like Whisk(e)y and Tequila, with an aim to maintain the **1 value position**, alongside prioritizing the growth of Guinness and developing culturally relevant local portfolios[144](index=144&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Diageo aims to lead and shape consumer trends including cocktail culture, moderation, exploration, convenience, food pairings, and the luxury segment through its **Diageo Luxury Group**[146](index=146&type=chunk)[147](index=147&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) - Operational excellence is supported by the 'Accelerate' program, which has three main goals: sustainably deliver c.**$3 billion** in free cash flow annually from FY26, achieve c.**$625 million** in cost savings over three years, and deleverage to within the **2.5-3.0x** net debt to adjusted EBITDA range by FY28[159](index=159&type=chunk) - In November, the Diageo Luxury Group was established to accelerate the growth of brands retailing at **$100 and above**, aiming to become the **number one luxury spirits company** in the world[181](index=181&type=chunk)[182](index=182&type=chunk) [Performance Review](index=22&type=section&id=Our%20performance) [Overall Performance Metrics](index=22&type=section&id=Monitoring%20performance%20and%20progress) Diageo's fiscal 2025 saw 1.7% organic net sales growth, a 0.7% organic operating profit decline, $2.75 billion free cash flow, and 13.7% ROIC, alongside progress in ESG areas like underage drinking education and environmental targets Key Financial Performance Indicators (Fiscal 2025) | Metric | Value/Change | | :--- | :--- | | Organic Net Sales Growth | 1.7% | | Organic Operating Profit Growth | (0.7)% | | Basic EPS before exceptional items | 164.2 cents (-8.6%) | | Free Cash Flow | $2,748 million | | Return on Average Invested Capital (ROIC) | 13.7% | | Total Shareholder Return (TSR) | (24)% | - Reported net sales of **$20.2 billion** declined **0.1%**, impacted by unfavorable foreign exchange and disposals, while organic net sales growth of **1.7%** was driven by **0.9%** volume growth and **0.8%** positive price/mix[190](index=190&type=chunk) - Reported operating profit declined **27.8%**, primarily due to exceptional impairment and restructuring costs. Organic operating profit declined by **0.7%**, with the margin down **68bps** due to investment in overheads[194](index=194&type=chunk) Key Non-Financial Performance Indicators (Fiscal 2025) | Metric | 2025 Performance | 2030 Target/Ambition | | :--- | :--- | :--- | | People educated on underage drinking | 2.0 million | 10 million (cumulative) | | Female leaders globally | 43% | 50% | | Ethnically diverse leaders globally | 46% | 45% | | Water efficiency (vs. FY20) | (15.8)% | (30)% | | Scope 1 & 2 GHG emissions (vs. FY22) | (18.8)% | (50)% | [Summary Financial Review](index=25&type=section&id=Summary%20financial%20review) Diageo's fiscal 2025 reported net sales were down 0.1% to $20,245 million, with 1.7% organic growth, while reported operating profit declined 27.8% due to exceptional items, and free cash flow increased to $2,748 million, supported by the 'Accelerate' program targeting $625 million in cost savings Fiscal 2025 Financial Summary | Metric | Fiscal 2025 | Fiscal 2024 | | :--- | :--- | :--- | | Reported Net Sales | $20,245 million | $20,269 million | | Organic Net Sales Growth | 1.7% | N/A | | Reported Operating Profit | $4,335 million | $6,001 million | | Organic Operating Profit Decline | 0.7% | N/A | | Basic EPS before exceptionals | 164.2 cents | 179.6 cents | | Free Cash Flow | $2,748 million | $2,609 million | | Net Debt | $21,854 million | $21,017 million | - Exceptional operating items increased significantly to **$1,369 million**, largely driven by impairments related to Distill Ventures (**$458 million**) and Aviation American Gin (**$231 million**), as well as restructuring costs for the Accelerate program (**$225 million**)[223](index=223&type=chunk) - The 'Accelerate' program aims to deliver c.**$625 million** in cost savings over three years, with approximately **50%** contributing to operating profit and **50%** reinvested in growth areas[240](index=240&type=chunk) - The company estimates the unmitigated annualized impact of current tariffs to be c.**$200 million**, but expects to mitigate around **half** of this impact on operating profit through actions like inventory management and supply chain optimization[232](index=232&type=chunk)[233](index=233&type=chunk) [Business Review](index=29&type=section&id=Business%20review) This section reviews Diageo's fiscal 2025 performance across five geographic regions and key product categories, highlighting strong organic growth in Tequila (18%) and Beer (10%), while Scotch and Vodka experienced declines [North America](index=31&type=section&id=North%20America) In fiscal 2025, North America delivered 1.5% organic net sales growth, driven by **16.9%** Tequila growth (Don Julio up **41.9%**), despite declines in Casamigos, Johnnie Walker, and vodka, with Guinness contributing to Diageo Beer Company's **4.8%** growth [Europe](index=33&type=section&id=Europe) Europe's organic net sales grew 0.3%, with a 4.3% volume decline offset by 4.5% positive price/mix, driven by strong Guinness growth in Great Britain and Ireland, while Southern and Northern Europe declined, and Türkiye saw 20.9% growth [Asia Pacific](index=34&type=section&id=Asia%20Pacific) Asia Pacific organic net sales declined 3.2% and operating profit fell 11.0% due to macroeconomic challenges in China and Travel Retail, despite strong 7.1% growth in India's Prestige & Above segment [Latin America and Caribbean](index=35&type=section&id=Latin%20America%20and%20Caribbean) Latin America and Caribbean delivered strong 9.2% organic net sales growth and 11.7% organic operating profit increase, led by Brazil's 18.0% growth in scotch and Mexico's Don Julio performance [Africa](index=35&type=section&id=Africa) Africa reported strong 10.5% organic net sales growth and 27.7% organic operating profit growth, with broad-based performance across markets like Ghana, South Africa, and Tanzania, driven by beer, rum, scotch, and Gordon's gin [Category and Brand Review](index=36&type=section&id=Category%20and%20brand%20review) Tequila led category growth with 18% organic net sales, followed by Beer at 10%, while Scotch, Vodka, Rum, and Gin declined, with Don Julio (38%) and Guinness (13%) showing strong brand performance [Group Financial Review](index=37&type=section&id=Group%20financial%20review) Diageo's fiscal 2025 reported net sales were $20,245 million, with operating profit at $4,335 million, significantly impacted by $1,425 million in exceptional items, while net borrowings increased to $21,854 million and the final dividend remained flat Reconciliation of Operating Profit (FY24 to FY25) | Description | Amount ($ million) | | :--- | :--- | | **FY24 Reported Operating Profit** | **6,001** | | Exceptional operating items | (1,425) | | Exchange | (200) | | Acquisitions and disposals | (27) | | Organic movement | (38) | | Fair value remeasurement | 13 | | Reclassification | — | | Hyperinflation | 11 | | **FY25 Reported Operating Profit** | **4,335** | - Exceptional operating items in FY25 were a charge of **$1,369 million**, primarily due to impairments (**$910 million**), restructuring programs (**$225 million**), and a distribution model change in France (**$145 million**)[328](index=328&type=chunk) - Net borrowings increased from **$21,017 million** in FY24 to **$21,854 million** in FY25. The increase was mainly driven by unfavorable exchange movements on non-US dollar debt, equity dividends paid, and cash outflows for other borrowings, partially offset by free cash flow and proceeds from bond issuances[336](index=336&type=chunk) - The recommended final dividend is **62.98 cents per share**, keeping the total dividend for the year flat. Dividend cover for FY25 was **1.6 times**, below the target range of **1.8-2.2 times**[333](index=333&type=chunk)[339](index=339&type=chunk) [Spirit of Progress (ESG)](index=42&type=section&id=Spirit%20of%20Progress) Diageo's 'Spirit of Progress' ESG plan focuses on positive drinking, grain-to-glass sustainability, and inclusion/diversity, with updated targets for emissions, regenerative agriculture, and packaging, overseen by the Board and Executive Committee, while preparing for new regulatory frameworks - The **'Spirit of Progress'** ESG action plan is structured around three core priorities: Promote positive drinking, Pioneer grain-to-glass sustainability, and Champion inclusion and diversity[361](index=361&type=chunk) - In fiscal 2025, the company **updated its emissions reduction, regenerative agriculture, and packaging ambitions** to reflect a new ESG issues assessment and updated Science Based Targets initiative (SBTi) targets[359](index=359&type=chunk) - The **Board and Executive Committee** oversee the 'Spirit of Progress' plan, with the Chief Executive having ultimate accountability for performance against its ambitions[363](index=363&type=chunk) [Business Integrity and Human Rights](index=44&type=section&id=Business%20integrity%20and%20Human%20rights) Diageo upholds business integrity through its Code of Business Conduct, 'SpeakUp' service, and 'Know Your Business Partner' program, committing to UN Guiding Principles on Human Rights, with salient risks like health and safety monitored via assessments and audits [Our People and Culture](index=46&type=section&id=Our%20people%20and%20culture) Diageo reports strong employee engagement (**83%**) and pride (**90%**), with **79%** of leadership appointments internal, focusing on an agile culture, and supporting wellbeing through a holistic framework including 'Carers Leave' and 'One World' share plan [Health and Safety](index=47&type=section&id=Health%20and%20safety) Diageo prioritizes health and safety with its 'Safer Together' strategy, improving Lost Time Accident Frequency Rate to **0.82** per 1,000 employees, and implementing continuous improvement initiatives like a global governance baseline survey and 'Safer Driver Programme' [Promote Positive Drinking](index=49&type=section&id=Promote%20positive%20drinking) Diageo promotes positive drinking by educating **2.0 million** young people on underage drinking and **1.6 million** on drink driving, leveraging its DRINKiQ platform and Diageo Marketing Code, with no upheld marketing complaints in fiscal 2025 [Pioneering Grain to Glass Sustainability](index=51&type=section&id=Pioneering%20grain%20to%20glass%20sustainability) Diageo addresses climate risks through its grain-to-glass sustainability strategy, updating decarbonization targets (50% Scope 1 & 2 reduction by 2030, net zero by 2040), improving water efficiency by **15.8%**, launching five regenerative agriculture programs, and increasing recycled packaging content to **46%** [Champion Inclusion and Diversity](index=62&type=section&id=Champion%20inclusion%20and%20diversity) Diageo champions inclusion and diversity, with **43%** female and **46%** ethnically diverse leaders, exceeding its 2030 ethnic diversity ambition, supported by inclusive policies, talent programs, and reaching **35,000** people through 'Learning for Life' [Risk Factors](index=66&type=section&id=Risk%20factors) Diageo faces principal risks from global economic instability, geopolitical conflicts, tariffs, inflation, shifts in consumer preferences (moderation, GLP-1s), regulatory changes, climate change, cyber-attacks, supply chain disruptions, and brand reputation damage - Global economic risks, including geopolitical instability (e.g., conflicts in Ukraine and the Middle East), tariffs, and inflationary pressures, could erode consumer confidence and reduce demand for Diageo's products[616](index=616&type=chunk)[617](index=617&type=chunk) - Climate change poses physical risks, such as water scarcity and extreme weather events affecting raw material supply, and transition risks from new regulations and changes in consumer behavior[624](index=624&type=chunk)[625](index=625&type=chunk) - The business faces risks from shifting consumer preferences, including trends towards moderation, lower/no alcohol beverages, and the potential impact of GLP-1 medications reducing alcohol consumption[629](index=629&type=chunk)[631](index=631&type=chunk) - Diageo is exposed to significant risks from cyber-attacks and IT threats, which could disrupt production, lead to data theft, and harm the company's reputation and financial results[657](index=657&type=chunk)[658](index=658&type=chunk) [Governance Report](index=77&type=section&id=Governance%20report) [Corporate Governance Report](index=84&type=section&id=Corporate%20governance%20report) Diageo's governance framework fully complies with the 2018 UK Corporate Governance Code, featuring a diverse Board (75% female, 50% minority ethnic) and clear separation of roles, with active monitoring of culture and adapted Board processes for enhanced responsiveness - The company confirms full compliance with the **2018 UK Corporate Governance Code** for the year ended 30 June 2025[694](index=694&type=chunk) - As of August 2025, the Board's composition includes **75% women** and **50% directors from minority ethnic groups**, exceeding its diversity policy objectives of at least **40% female representation** and at least one director from a minority ethnic group[731](index=731&type=chunk) - The Board monitors and assesses the company's culture through various channels, including **site visits, employee surveys ('Your Voice'), reports from the 'SpeakUp' whistleblowing service, and a formal workforce engagement program**[810](index=810&type=chunk)[811](index=811&type=chunk)[812](index=812&type=chunk)[814](index=814&type=chunk) - Following a review, the Board **adapted its processes and committee structure**, moving to a more conventional model with smaller committee memberships to improve effectiveness and responsiveness to the external environment[783](index=783&type=chunk)[784](index=784&type=chunk) [Audit Committee Report](index=97&type=section&id=Audit%20Committee%20report) The Audit Committee reviewed financial reporting integrity, internal controls, and risk management, focusing on asset impairment, Brazilian tax exposures, and cyber security, confirming effective internal controls and an unqualified external auditor opinion - The Committee reviewed significant financial judgments, including the **impairment of intangible assets** (Distill Ventures, Aviation American Gin), **tax exposures**, and the **valuation of post-employment liabilities**[889](index=889&type=chunk)[890](index=890&type=chunk)[892](index=892&type=chunk) - The Committee oversees the company's **cyber security risk management**, which is aligned to the group's principal risk of 'Cyber and IT resilience', and is enhancing processes to align with new regulations like the EU's NIS2 directive[897](index=897&type=chunk)[898](index=898&type=chunk) - Management concluded that as of June 30, 2025, internal control over financial reporting was effective, based on the **COSO 2013 framework**. The external auditor, PricewaterhouseCoopers LLP, issued an unqualified report on this assessment[877](index=877&type=chunk) - The FRC reviewed the company's 2024 annual report and had **no questions or queries**, though it noted some matters for potential improvement, which have been addressed in the 2025 report[852](index=852&type=chunk) [Nomination Committee Report](index=104&type=section&id=Nomination%20Committee%20report) The Nomination Committee supervised the CEO search, appointed Nik Jhangiani as Interim CEO, oversaw Executive Committee transitions, and implemented a new, more focused committee structure, while managing the annual board evaluation and ensuring diversity targets are met - The committee is supervising a **comprehensive formal search process** for a new Chief Executive following the departure of Debra Crew. **Nik Jhangiani** has been appointed Interim Chief Executive[910](index=910&type=chunk) - The committee oversaw a **change in board committee composition**, moving to a more conventional model with smaller, more focused memberships for the Audit and Remuneration Committees starting in fiscal 2026[913](index=913&type=chunk)[924](index=924&type=chunk) - The Board's diversity policy targets have been met, with a commitment to maintain no less than **40% female representation** and at least one director from a minority ethnic group[929](index=929&type=chunk) [Directors' Remuneration Report](index=108&type=section&id=Directors'%20Remuneration%20report) The report details fiscal 2025 executive pay, with Annual Incentive Plan (AIP) payouts at 40% of maximum and Long-Term Incentive Plan (DLTIP) vesting at 12.5% (driven by ESG), and outlines fiscal 2026 changes including new adjusted operating cash flow and ROIC measures Fiscal 2025 Incentive Outcomes (% of Maximum) | Plan | Metric Category | Payout | | :--- | :--- | :--- | | **Annual Incentive Plan (AIP)** | Financial Measures | 40.0% | | | Total (incl. IBOs) - CEO | 42.0% | | **Long-Term Incentive Plan (DLTIP)** | Financial Measures | 0% | | | ESG Measures | 62.5% | | | Total Vesting | 12.5% | - For fiscal 2026, incentive plans will be updated. The AIP will replace operating cash conversion with a **new adjusted operating cash flow measure**. The DLTIP will introduce a **return on invested capital (ROIC) measure** and refresh its ESG metrics[962](index=962&type=chunk) - **Debra Crew** stepped down as CEO post year-end, with leaving arrangements in line with policy. **Nik Jhangiani** was appointed Interim CEO[946](index=946&type=chunk) - The Remuneration Committee agreed to a **salary freeze** for the majority of the Executive Committee for fiscal 2026, reflecting the challenging industry conditions and lower salary increase budgets for the wider workforce[958](index=958&type=chunk) [Directors' Report](index=135&type=section&id=Directors'%20report) This report provides statutory information on Diageo plc, including director re-election, major shareholders (BlackRock at 5.89%), change of control clauses for the Moët Hennessy joint venture, and details on employment policies and trading markets for its shares and ADSs Major Shareholders (as of 30 June 2025) | Shareholder | % of Issued Ordinary Share Capital | | :--- | :--- | | BlackRock Investment Management (UK) Limited | 5.89% | | Capital Research and Management Company | 4.99% | | Massachusetts Financial Services Company | 4.99% | - Significant agreements with LVMH regarding the Moët Hennessy joint venture contain change of control clauses. If a competitor takes control of Diageo, LVMH may require Diageo to sell its **34% interest** in Moët Hennessy[1190](index=1190&type=chunk) - Diageo's ordinary shares are listed on the London Stock Exchange, and its American Depositary Shares (ADSs), each representing **four ordinary shares**, are listed on the New York Stock Exchange[1196](index=1196&type=chunk) [Financial Statements](index=139&type=section&id=Financial%20statements) [Report of Independent Registered Public Accounting Firm](index=140&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion on Diageo's consolidated financial statements and effective internal controls, identifying contingent liabilities for Brazilian taxes as a Critical Audit Matter due to significant judgment and subjectivity - The auditor, PricewaterhouseCoopers LLP, issued an **unqualified opinion**, stating that the consolidated financial statements present fairly, in all material respects, the financial position and results of Diageo's operations[1223](index=1223&type=chunk) - The company's internal control over financial reporting as of June 30, 2025, was deemed **effective in all material respects**[1223](index=1223&type=chunk) - A Critical Audit Matter was identified concerning the **contingent liabilities associated with taxes in Brazil**, highlighting the significant management judgments and high degree of auditor subjectivity required to assess the probability and amount of expected settlements[1230](index=1230&type=chunk)[1231](index=1231&type=chunk) [Consolidated Financial Statements](index=145&type=section&id=Consolidated%20Financial%20Statements) Diageo's fiscal 2025 consolidated financial statements show profit for the year at $2,538 million, total assets of $49,322 million, total equity of $13,178 million, and a net cash inflow from operating activities of $4,297 million Consolidated Income Statement Highlights ($ million) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net Sales | 20,245 | 20,269 | | Operating Profit | 4,335 | 6,001 | | Profit for the year | 2,538 | 4,166 | | Basic Earnings Per Share (cents) | 105.9 | 173.2 | Consolidated Balance Sheet Highlights ($ million) | Line Item | 30 June 2025 | 30 June 2024 | | :--- | :--- | :--- | | Total Assets | 49,322 | 45,474 | | Total Liabilities | 36,144 | 33,404 | | Total Equity | 13,178 | 12,070 | Consolidated Statement of Cash Flows Highlights ($ million) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | Net cash inflow from operating activities | 4,297 | 4,105 | | Net cash outflow from investing activities | (1,720) | (1,595) | | Net cash outflow from financing activities | (1,494) | (3,106) | [Notes to the Consolidated Financial Statements](index=153&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) This section provides detailed explanations of accounting policies and figures, including segmental information, exceptional items (e.g., $1,369 million charge for impairments and restructuring), acquisitions/disposals (e.g., Guinness Nigeria sale), intangible assets, financial instruments, net borrowings, and contingent liabilities (e.g., $906 million for Brazil tax disputes) - Exceptional operating items totaled a charge of **$1,369 million**, primarily driven by impairment charges of **$910 million** (including Distill Ventures and Aviation American Gin), restructuring program costs of **$225 million**, and a **$145 million** charge for the distribution model change in France[1293](index=1293&type=chunk) - The company completed the sale of its shareholding in Guinness Nigeria PLC, resulting in a non-operating exceptional loss of **$125 million**. It also announced agreements to sell its breweries in Ghana and Seychelles[1310](index=1310&type=chunk)[1311](index=1311&type=chunk)[1313](index=1313&type=chunk) - Significant impairment charges were recognized against intangible assets, including **$231 million** for the Aviation American Gin brand and **$458 million** related to the Distill Ventures program[1298](index=1298&type=chunk) - The group faces significant contingent liabilities from ongoing tax cases, with a known possible exposure of up to approximately **$906 million** for Brazil and **$90 million** for India, for which no provision has been made[1630](index=1630&type=chunk) [Additional Information](index=213&type=section&id=Additional%20Information) [Unaudited Financial Information (Non-GAAP Measures)](index=213&type=section&id=Unaudited%20financial%20information) This section defines and reconciles non-GAAP measures like 'organic movements', presented on a constant currency basis, and other key metrics including EPS before exceptional items, Free Cash Flow, ROIC, and Adjusted Net Borrowings to Adjusted EBITDA - Organic movements are a key non-GAAP measure used by management. They are calculated on a **constant currency basis** and **exclude the impact of exceptional items, certain fair value remeasurements, hyperinflation, and acquisitions/disposals** to show the underlying performance of the business[1669](index=1669&type=chunk) Reconciliation of Key Non-GAAP Measures (Fiscal 2025) | Metric | Value | | :--- | :--- | | Basic EPS before exceptional items | 164.2 cents | | Free Cash Flow | $2,748 million | | Return on Average Invested Capital (ROIC) | 13.7% | | Adjusted Net Borrowings to Adjusted EBITDA | 3.4x | - The document provides **detailed reconciliation tables** for fiscal 2025, showing the adjustments for exchange rates, acquisitions/disposals, and hyperinflation that bridge the gap between reported results and organic movements for each geographical segment[1685](index=1685&type=chunk) [Liquidity and Capital Resources](index=233&type=section&id=Liquidity%20and%20capital%20resources) Diageo's liquidity primarily stems from operations, with $3.5 billion in undrawn bank facilities, while its adjusted net borrowings to adjusted EBITDA ratio was 3.4x (above the 2.5–3.0x target), and net borrowings increased to $21,854 million - The primary source of liquidity is cash from operations. The group had **$3.5 billion** in available undrawn committed bank facilities as of June 30, 2025[1805](index=1805&type=chunk)[1807](index=1807&type=chunk) Capital Structure and Liquidity Metrics (Fiscal 2025) | Metric | Value | | :--- | :--- | | Net Borrowings | $21,854 million | | Adjusted Net Borrowings to Adjusted EBITDA Ratio | 3.4x | | Target Leverage Ratio | 2.5–3.0x | | Effective Interest Rate | 4.1% | - Net cash inflow from operating activities was **$4,297 million**, an increase of **$192 million** from the prior year, driven by favorable working capital movements[1813](index=1813&type=chunk)

Core Insights - Diageo reported a slight decline in global net sales for the fiscal year ending June 30, 2025, with a total of $20.245 billion, down 0.1% year-on-year, but organic sales grew by 1.7%, slightly above market expectations of 1.4% [3] - The company experienced a significant drop in profits, with operating profit down 27.8% to $4.335 billion and net profit down 39.1% to $2.538 billion, leading to a decrease in earnings per share (EPS) from $1.73 to $1.06 [3][5] Financial Performance - The North American market, Diageo's largest region, saw net sales of $7.973 billion, an increase of 1.5%, while Europe recorded $4.821 billion, up 0.4%, with the UK market growing by 6.7% [7] - The Asia-Pacific region, particularly Greater China, faced a decline in organic net sales by 3.2%, with Greater China experiencing a drop from 4% in the first half to 9% for the full fiscal year [7][8] Product Category Performance - Sales of Scotch whisky and vodka faced challenges, with their net sales proportion decreasing to 76% of total revenue, while tequila and beer showed strong growth, with tequila's organic net sales up 16.9% and beer sales up 6% [8][9] - Guinness beer's success was attributed to brand building, product innovation, and global market expansion, maintaining strong growth even amid supply constraints [8] Cost Management and Strategic Adjustments - Diageo announced an increase in its cost-saving target from £500 million to £625 million over the next three years, aiming to improve profit margins and reinvest in growth areas [11] - The company is adjusting its strategic focus to cater to emerging consumer trends, particularly among Gen Z, who are shifting towards non-alcoholic beverages and ready-to-drink cocktails [13] Leadership Changes - Following the sudden departure of former CEO Debra Crew, the company is in a transitional phase, with the CFO Nik Jhangiani serving as interim CEO until a new leader is appointed by the end of October [13]

Core Insights - Diageo plc reported a decline in pre-exceptional earnings per share by 8.6% year over year to 164.2 cents, primarily due to lower contributions from Moët Hennessy and adverse currency effects [1][8] - Net sales decreased by 0.1% year over year to $20.2 billion, impacted by unfavorable currency effects and adjustments from acquisitions and disposals, despite improved organic sales [2][8] Financial Performance - Organic net sales increased by 1.7% year over year, supported by a 0.9% growth in organic volume and a 0.8% improvement in price/mix [3] - The reported operating profit fell by 27.8% year over year to $4.3 billion, influenced by exceptional impairment and restructuring charges, unfavorable currency movements, and a contraction in organic operating margin [9] - Organic operating profit decreased by 0.7% year over year, with a reported operating margin contraction of 819 basis points [10] Regional Performance - Volume declined in North America and Europe due to a cautious consumer environment, while volume gains were observed in the Asia Pacific, Africa, and Latin America [4] - North America experienced positive price/mix contributions driven by tequila, particularly aged variants, while Europe saw growth from Guinness [5] Future Outlook - Diageo anticipates organic net sales for fiscal 2026 to be broadly in line with fiscal 2025, with growth expected to be weighted towards the second half of the fiscal year [13] - The company forecasts mid-single-digit growth in organic operating profit for fiscal 2026, primarily driven by cost savings under its Accelerate Program [14] - Capital expenditures are projected to be between $1.2 billion and $1.3 billion, with free cash flow expected to reach $3 billion [15]

Financial Data and Key Metrics Changes - The company is planning for a more cautious consumer environment in the US for fiscal 2026, indicating a focus on managing inventory levels and achieving normalized stock levels [10][11] - Organic sales guidance for fiscal 2026 is expected to be similar to fiscal 2025, with a potential acceleration in the second half of the year [15][16] - The company anticipates a $50 million reduction in starting EBIT due to disposals, with additional impacts from the sale of Ghana and Seychelles breweries [21][22] Business Line Data and Key Metrics Changes - The spirits segment in Europe has faced pressure, but the company views this as an opportunity to better control outcomes by focusing on local markets and consumer dynamics [11][12] - The company is focusing on driving growth in key brands such as Don Julio and Guinness, despite organic sales declines [19][20] Market Data and Key Metrics Changes - The US market is expected to be cautious, with a stretched consumer wallet impacting sales [28][29] - The company is optimistic about the potential for growth in the Asia Pacific region, particularly in China, despite recent challenges [30][31] Company Strategy and Development Direction - The company is reorganizing to capture growth opportunities by being more locally focused and occasion-led in various markets [12][13] - There is a clear strategy to enhance commercial execution at the point of sale, with a focus on training and upskilling resources [17][18] - The company is committed to premiumization and expanding its portfolio, particularly in the tequila segment [40][41] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current macroeconomic pressures but believes that moderation trends in consumer behavior present new opportunities [65][66] - The company remains confident in the long-term growth potential of the US spirits market despite short-term pressures [79][80] Other Important Information - The company is implementing changes to its currency hedging strategy to reduce volatility and align hedge targets with operating profit exposure [36][37] - The company plans to reinvest 50% of cost savings into better commercial execution and digitization efforts [70][71] Q&A Session Summary Question: US depletion outlook and inventory message - Management indicated that inventory levels have normalized and they are planning for a cautious consumer environment in the US for fiscal 2026 [10][11] Question: Investment in Europe and spirits portfolio - Management acknowledged the pressure on the spirits portfolio in Europe but sees it as an opportunity for better control and growth [11][12] Question: Organic sales guidance for fiscal 2026 - Management expects organic sales guidance for fiscal 2026 to be similar to fiscal 2025, with potential acceleration in the second half [15][16] Question: Impact of disposals on EBIT - Management confirmed a $50 million reduction in starting EBIT due to disposals, with additional impacts from recent sales [21][22] Question: Focus on moderation trends - Management noted that moderation trends are here to stay and the company is looking to tap into this with a broader range of products [65][66] Question: Reinvestment of cost savings - Management stated that 50% of cost savings will be reinvested into commercial execution and digitization efforts [70][71]

Financial Data and Key Metrics Changes - The company is planning for a more cautious consumer environment in the US for fiscal 2026, indicating a focus on managing inventory levels and achieving normalized stock levels [8][9] - Organic sales guidance for fiscal 2026 is expected to be similar to fiscal 2025, with a potential acceleration in the second half of the year [14][30] - The company anticipates a $50 million reduction in starting EBIT due to disposals, with additional impacts from recent sales in Ghana and Seychelles [22][30] Business Line Data and Key Metrics Changes - The spirits segment in Europe has faced pressure, but the company sees this as an opportunity to better control outcomes by focusing on local markets and consumer dynamics [9][10] - The company is focusing on driving growth in key brands such as Don Julio, Guinness, and Johnny Walker, despite organic sales declines [20][30] Market Data and Key Metrics Changes - The US market is expected to be cautious, with consumer wallets still stretched, impacting sales performance [28][30] - In Asia Pacific, particularly China, the market has been more challenged outside of the Chinese New Year, but the company is optimistic about future growth opportunities [29][30] Company Strategy and Development Direction - The company is reorganizing to capture growth opportunities by being more locally focused and occasion-led, particularly in Southern Europe [10][11] - There is a clear strategy to enhance commercial execution at the point of sale, with a focus on training and upskilling resources [18][47] - The company is committed to premiumization and expanding its portfolio, particularly in the tequila segment [40][42] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the current macroeconomic pressures but believes that moderation trends in consumer behavior present new growth opportunities [62][70] - The company is focused on balancing growth across its portfolio, with an emphasis on both volume and price mix [56][59] Other Important Information - The company is actively managing its portfolio, with ongoing disposals of non-core assets while maintaining a focus on core brands [86] - There is a commitment to reinvest 50% of cost savings into better commercial execution and digitization efforts [70][71] Q&A Session Summary Question: US depletion outlook and inventory message - Management indicated that inventory levels have normalized and they are planning for a cautious consumer environment in the US for fiscal 2026 [8][9] Question: Organic sales guidance for fiscal 2026 - Management expressed confidence in achieving a similar organic sales performance to fiscal 2025, with expectations for acceleration in the second half [14][30] Question: Impact of disposals on EBIT - Management confirmed a $50 million reduction in EBIT due to disposals, with additional impacts from recent sales in Ghana and Seychelles [22][30] Question: Focus on the Astral brand in the US - Management sees significant growth potential for the Astral brand in the super premium segment and is optimistic about its scaling [40][41] Question: Changes in US route to market - Management highlighted the importance of both increasing the number of salespeople and enhancing their effectiveness through training and focused execution [46][47] Question: Structural headwinds and moderation trends - Management acknowledged the ongoing moderation trend but emphasized the company's ability to innovate and adapt to consumer preferences [62][70]

Group 1 - Diageo reported preliminary results for the fiscal year 2025, with sales of $20.245 billion, slightly down 0.1% year-on-year, but better than the market expectation of $20 billion [1] - Organic sales grew by 1.7% year-on-year, surpassing the analyst consensus of 1.4% [1] - Operating profit fell by 27.8% to $4.335 billion, with an operating margin decline of 819 basis points to 21.4% [1] Group 2 - Diageo expects organic sales growth for fiscal year 2026 to be similar to that of fiscal year 2025, with operating profit anticipated to achieve mid-single-digit organic growth [1] - The company faces economic uncertainty and consumer inflation concerns due to tariffs imposed by former President Trump, with annual tariff costs now estimated at $200 million, up from a previous estimate of $150 million [1] - Diageo's interim CEO, Nik Jhangiani, announced an increase in the cost-saving target from $500 million to $625 million over the next three years [1] Group 3 - Nik Jhangiani took over as interim CEO after the departure of Debra Crew and indicated that the board may decide on a new CEO by the end of October [2] - Despite a challenging consumer environment, including preferences for non-alcoholic beverages and ready-to-drink cocktails, consumers, including Gen Z, continue to spend [2] - Analyst Ed Mundy from Jefferies noted that Diageo's sales growth target for fiscal year 2026 is in line with market expectations, and the company has maintained or grown market share in 65% of monitored markets, including the U.S. [2]

Financial Data and Key Metrics Changes - The company delivered 1.7% organic sales growth, or 1.5% before the impact of the Syrah transaction in North America [4] - Organic profit declined by 0.7%, including the Syrah transaction impact, and declined by 1% excluding this [4] - Free cash flow was $2.7 billion, up $100 million from last year, reflecting solid working capital management [5] - EPS pre-exceptionals declined almost 9%, mainly due to a significantly lower contribution from Moire Tennessee and adverse FX [5] - Recommended full year dividend remained flat compared to last year, deemed prudent given the current backdrop [5] Business Line Data and Key Metrics Changes - Positive organic sales growth was observed in almost all regions, although operating profits were adversely impacted by increased overheads [4] - In North America, U.S. spirits net sales grew 1.6% organically with a positive price mix of 2.9% [32] - In India, growth was driven by prestige and above whiskey, with the UK-India free trade agreement expected to support future growth [30] - In Europe, Guinness was a main driver of growth, recovering from a period of consumer down trading [46] - In Africa, organic net sales growth was led by Ghana, while Brazil benefited from a more stable environment through premiumization [31] Market Data and Key Metrics Changes - Trading conditions remained challenging due to macroeconomic and geopolitical uncertainty, particularly in key markets like the U.S. and China [29] - The company held or grew market share in 65% of total net sales in measured markets, including the U.S. [29] - Consumer sentiment remains subdued, with 25% of consumers indicating saving money as a top reason for moderating their TBA consumption [24] - Gen Z household penetration of spirits increased by six percentage points to 55% in 2024 compared to 2020 [26] Company Strategy and Development Direction - The company is sharpening its strategy to leverage its portfolio and competitive strengths in an evolving TBA landscape [7] - The Accelerate program aims to deliver $625 million in cash savings over the next three years, focusing on operational excellence and cost efficiency [10] - The company is committed to delivering approximately $3 billion of free cash flow per annum from fiscal 2026 [21] - There is a focus on digital investment to leverage data for actionable insights and consistent metrics [14] Management's Comments on Operating Environment and Future Outlook - The management believes spirits remain an attractive sector long-term, supported by favorable demographics and increasing female per capita consumption [22] - Near-term pressures on the sector are viewed as largely cyclical and driven by the macroeconomic environment [24] - The company expects organic net sales growth to be slightly negative in fiscal 2026, with growth skewed to the second half [57] - Management is focused on instilling confidence in the team and leveraging the strength of the brand portfolio for future growth [62] Other Important Information - The company announced significant exceptional charges totaling $1.4 billion, including a $450 million charge related to Distill Ventures and a $230 million impairment charge for Aviation Gin [52][53] - Closing net debt was $21.9 billion, which was $800 million higher than at the start of the year due to unfavorable foreign exchange movements [54] - The leverage ratio increased to 3.4 times net debt adjusted EBITDA, above the target range of 2.5 to 3 times [54] Q&A Session Summary Question: What are the expectations for organic net sales growth in fiscal 2026? - The company expects similar rates of organic net sales growth to those seen in fiscal 2025, with a cautious outlook for the consumer environment [56][57] Question: How is the company addressing the impact of tariffs? - The company anticipates a 10% rate for UK imports and a 15% rate for European imports into the U.S., expecting to mitigate 50% of the impact in the first year [59] Question: What is the focus of the Accelerate program? - The Accelerate program is focused on delivering cash savings, improving operational efficiency, and driving better growth through a more agile operating model [10][11]

Financial Data and Key Metrics Changes - The company delivered 1.7% organic sales growth, or 1.5% before the impact of the Syrah transaction in North America, with organic profit declining 0.7% including the Syrah transaction impact and 1% excluding it [4][5] - Free cash flow was $2.7 billion, up $100 million from last year, reflecting solid working capital management [5][48] - EPS pre-exceptionals declined almost 9%, mainly due to a significantly lower contribution from Moire Tennessee and adverse foreign exchange [5][49] - Reported net sales were broadly flat at £20.2 billion, with positive organic growth offset by the net impact of acquisitions and disposals as well as unfavorable foreign exchange [42][43] Business Line Data and Key Metrics Changes - In North America, U.S. spirits net sales grew 1.6% organically with a positive price mix of 2.9%, driven by strong performance in tequila brands like Don Julio and Crown Royal [30][31] - In Europe, Guinness continued to drive growth, delivering double-digit organic net sales growth despite a challenging beer market [31][44] - In Asia Pacific, positive volume growth was particularly noted in India, while price mix declined due to consumer down trading in Southeast Asia and China [43][44] Market Data and Key Metrics Changes - The company gained market share in 65 of its total net sales in measured markets, including the U.S., despite challenging trading conditions [27] - In India, growth was driven by prestige and above whiskey, with the UK-India free trade agreement expected to support future growth potential [28] - In Africa, organic net sales growth was observed across all markets, led by Ghana [29] Company Strategy and Development Direction - The company is sharpening its strategy to leverage its portfolio and competitive strengths, focusing on commercial execution and optimizing trade investments [7][8] - The Accelerate program aims to deliver $625 million in cash savings over the next three years, with a commitment to drive better growth alongside cost-cutting measures [9][13] - The company is committed to delivering approximately $3 billion of free cash flow per annum from fiscal 2026, supported by mid-single-digit organic operating profit growth and reduced CapEx [20][54] Management's Comments on Operating Environment and Future Outlook - The management believes that the spirits sector remains attractive long-term, supported by favorable demographics and increasing female per capita consumption [21][22] - Near-term pressures on the sector are viewed as largely cyclical and driven by the macroeconomic environment, with consumer sentiment remaining subdued [23][25] - The company expects organic net sales growth to be slightly negative in fiscal 2026, with growth skewed to the second half of the year [54] Other Important Information - The company announced a flat full-year dividend, which is considered prudent given the current economic backdrop [5] - Significant exceptional charges of $1.4 billion were reported, including a $450 million charge related to Distill Ventures and a $230 million impairment charge for Aviation Gin [49][50] - The company is focused on optimizing its supply chain and has announced a new manufacturing and warehousing facility in Montgomery, Alabama [31] Q&A Session Summary Question: What are the expectations for organic net sales growth in fiscal 2026? - The company expects organic net sales growth to be slightly negative, with growth skewed to the second half of the year due to various factors [54] Question: How is the company addressing the challenges in the spirits sector? - The management is focused on leveraging its brand portfolio and optimizing commercial execution to drive growth despite the cyclical pressures [25][26] Question: What are the plans for cash flow and capital expenditures? - The company aims to deliver approximately $3 billion of free cash flow in fiscal 2026, with a reduced CapEx spend expected to trend to mid-single digits as a percentage of net sales [20][54]