Diageo(US:DEO)2025-08-14 10:49Strategic Report: Our Business This section outlines Diageo's global operations, brand portfolio, and strategic priorities, detailing its market position and growth initiatives Diageo at a Glance This section provides an overview of Diageo's global operations, brand portfolio, and strategic focus, highlighting its market leadership and extensive reach FY2025 Overview | Metric | Value | | :----- | :---- | | FY2025 Reported Net Sales | 20.2 billion USD | | Number of Billion-Dollar Brands | 13 | | International Spirits Ranking (by retail sales) | 1 | | Global Business Coverage | ~180 countries and regions | | Number of Employees | 29,000+ | | Number of Production Sites | 110+ | - Diageo holds leading positions across categories including whisky, tequila, vodka, gin, and liqueurs5 - The company's product portfolio spans multiple price tiers: Value Standard (8%), Premium (30%), Super Premium (37%), Ultra-Premium (16%), Luxury (5%), and Non-alcoholic Spirits (4%)5 Chair's Statement Sir John Manzoni reviews his first six months, highlighting Diageo's 1.7% organic net sales growth and maintained 103.48 cents per share dividend in FY2025 despite macroeconomic challenges, driven by strong brands and global presence - Sir John Manzoni was appointed Chair in February 20259 FY2025 Performance Highlights | Metric | FY2025 Performance | | :----- | :------------- | | Organic Net Sales Growth | 1.7% | | Organic Volume Growth | 0.9% | | Price/Mix | 0.8% | | Full-Year Dividend | 103.48 cents per share (flat) | - Diageo is the world's largest producer of non-alcoholic spirits, expanding its portfolio through acquisitions like Ritual Beverage Company LLC and products such as Captain Morgan 0.022 - Over the past decade, premium and above international spirits have grown from 26% to nearly 35% of category value, with ultra-premium growing over 50% faster than other price tiers23 - Debra Crew resigned as CEO in July 2025, with Nik Jhangiani appointed interim CEO and Deirdre Mahlan as interim CFO2526 Chief Executive's Statement Interim CEO Nik Jhangiani reports 1.7% organic net sales growth and a 1.0% organic operating profit decline (excluding Cîroc) in FY2025, aligning with guidance, driven by strong tequila and Guinness performance and strategic divestitures FY2025 Performance Summary | Metric | FY2025 Performance | | :----- | :------------- | | Organic Net Sales Growth | 1.7% (1.5% excluding Cîroc) | | Organic Operating Profit Decline | 0.7% (1.0% excluding Cîroc) | | Net Cash Flow from Operating Activities | 4.3 billion USD (up 0.2 billion USD) | | Free Cash Flow | 2.7 billion USD (up 0.1 billion USD) | - Tequila organic net sales grew by 18%, with Don Julio gaining global market share51 - Guinness sustained strong growth, expanding to 88 markets, with its non-alcoholic version, Guinness 0.0, becoming the UK's number one non-alcoholic beer5358 - The "Accelerate" program aims for sustained ~3.0 billion USD free cash flow annually from FY2026 and ~625 million USD in cost savings over the next three years5973 - The company executed several strategic divestitures, including the Pampero, Safari, and Cacique brands, and equity stakes in Guinness Nigeria, Guinness Ghana, and Seychelles Breweries53 Performance Highlights This section summarizes Diageo's FY2025 financial and non-financial performance, noting growth in organic net sales and free cash flow, alongside progress in positive drinking education, water efficiency, and diversity FY2025 Financial Performance | Metric | Value (FY2025) | Reported Change (%) | Organic Change (%) | | :-------------------------- | :------------------ | :-------------------- | :------------------- | | Volume (equivalent units) | 230.1 million units | -% | 1% ▲ | | Reported Net Sales | 20.245 billion USD | -% | 2% ▲ | | Reported Operating Profit | 4.335 billion USD | (28)% ▼ | (1)% ▼ | | Net Cash Flow from Operating Activities | 4.297 billion USD | -% | - | | Free Cash Flow | 2.748 billion USD | - | - | | Earnings Per Share (EPS) | 105.9 cents | (39)% ▼ | - | | EPS before exceptional items | - | (9)% ▼ | - | FY2025 Non-Financial Performance | Metric | Value (FY2025) | Change from FY2024 | | :------------------------------------------------ | :---------------- | :------------------- | | People educated on underage drinking harms | 2.0 million people | (0.2 million people) ▼ | | Global Female Leaders | 43% | (1)% ▼ | | Global Minority Ethnic Leaders | 46% | 0% | | Water Efficiency (vs. FY2020 baseline) | (15.8)% | (2.9)% ▼ | | GHG Emissions (Scope 1 & 2, vs. FY2022 baseline) | (18.8)% | (4.4)% ▼ | - The "Accelerate" program targets include achieving ~3.0 billion USD in free cash flow annually from FY2026, ~625 million USD in cost savings over the next three years, and maintaining a net debt to adjusted EBITDA ratio between 2.5x and 3.0x by FY2028818283 Market Dynamics This section explores the spirits industry's attractive fundamentals, including premiumization and growth opportunities, while addressing potential headwinds like consumer spending, cannabis, and GLP-1s - Long-term value growth in spirits is driven by premiumization; over the past decade, premium and above spirits have grown from 26% to nearly 35% of category value101 - Diageo holds a 4.5% share of the global Total Beverage Alcohol (TBA) market, with significant growth opportunities in key markets including the US102 - Positive drinking is a key opportunity for Diageo, with spirits' inherent versatility making it more accessible and appealing; the company leads in non-alcoholic innovation118 - Gen Z's penetration in the US spirits market is increasing, driven by spirits-based Ready-to-Drink (RTD) products and tequila, with participation rates higher than the total drinking population average119 Our Strategy Diageo's strategy focuses on leveraging its brand portfolio, leading consumer trends like premiumization and positive drinking, and achieving operational excellence through initiatives like the "Accelerate" program - Strategic priorities include maintaining leadership in whisky and tequila, accelerating Johnnie Walker recruitment through innovation, and promoting local brands like Buchanan's Pineapple125126 - Guinness is a key strategic growth focus, consistently delivering double-digit net sales growth and expanding its consumer base with innovations like Guinness 0.0127 - Shaping consumer trends involves developing cocktail culture with premium portfolios, leading positive drinking in non-alcoholic and low-alcohol products, expanding RTD portfolios for convenience, and accelerating growth in the luxury segment129130132134 - Operational excellence is achieved by optimizing A&P (advertising and promotion) efficiency, strengthening commercial execution (e.g., digital innovation), and enhancing productivity (e.g., revenue growth management, supply chain excellence)135 - The "Accelerate" program targets include achieving ~3.0 billion USD in free cash flow annually from FY2026, ~625 million USD in cost savings over the next three years, and maintaining a net debt to adjusted EBITDA ratio between 2.5x and 3.0x by FY2028136 Strategic Report: Our Performance This section details Diageo's financial and non-financial performance, outlining its business model, key performance indicators, and progress across various strategic and ESG initiatives Our Business Model Diageo's business model creates value through seven key stages, from sourcing to consumer celebration, with recent operational excellence in US spirits transformation, supply chain digitalization, and luxury brand building - The business model encompasses sourcing, innovation, manufacturing, shipping, selling to customers, marketing to consumers, and helping consumers celebrate157158159160161170171 - The US spirits business underwent a significant transformation, enhancing route-to-market and commercial execution by increasing brand building and sales roles for whisky and tequila163164 - Supply chain digitalization was achieved through the deployment of the Scotch Whisky Intelligent Platform (SIP), optimizing pre-bottling allocation, increasing maturation output, and synchronizing liquid logistics167177 - The Diageo Luxury Private Client Group was established to accelerate growth in the ultra-premium (100 USD and above) spirits segment and lead luxury experiences172173 Monitoring Performance and Progress This section details Diageo's financial and non-financial KPIs, including reported and non-GAAP metrics, defining them and presenting FY2025 performance against prior years Reported Financial Metrics | Metric | 2025 | 2024 | 2023 | 2022 | 2021 | | :---------------------- | :----- | :----- | :----- | :----- | :----- | | Net Sales Growth (%) | (0.1) | (1.4) | 0.2 | 19.3 | 16.1 | | Operating Profit Growth (%) | (27.8) | 8.2 | (5.9) | 17.1 | 84.9 | | Basic EPS (cents) | 105.9 | 173.2 | 196.3 | 184.6 | 153.8 | | Net Cash Flow from Operating Activities (million USD) | 4,297 | 4,105 | 3,636 | 5,213 | 4,932 | | Return on Net Assets at Period End (%) | 19.3 | 34.5 | 38.3 | 38.3 | 32.3 | Non-GAAP Financial Metrics | Metric | 2025 | 2024 | 2023 | 2022 | 2021 | | :------------------------------------ | :----- | :----- | :----- | :----- | :----- | | Organic Net Sales Growth (%) | 1.7 | (0.6) | 6.5 | 21.4 | 16.0 | | Organic Operating Profit Growth (%) | (0.7) | (4.8) | 7.0 | 26.3 | 17.7 | | EPS before exceptional items (cents) | 164.2 | 179.6 | 196.5 | 201.9 | 158.8 | | Free Cash Flow (million USD) | 2,748 | 2,609 | 2,235 | 3,779 | 4,106 | | Average Return on Invested Capital (%) | 13.7 | 15.8 | 18.4 | 19.8 | 16.1 | | Total Shareholder Return (%) | (24) | (24) | (2) | 4 | 32 | - Reported net sales decreased by 0.1%, primarily due to unfavorable exchange rates and acquisition/disposal adjustments; organic net sales grew by 1.7% (1.5% excluding Cîroc)178 - Reported operating profit decreased by 27.8%, mainly due to exceptional impairment and restructuring costs; organic operating profit decreased by 0.7% (1.0% excluding Cîroc)178 Non-Financial Performance This section details Diageo's FY2025 non-financial performance across key ESG areas, including positive drinking, employee engagement, diversity, water efficiency, and GHG emissions FY2025 Non-Financial Performance Highlights | Metric | FY2025 Performance | FY2024 Performance | 2030 Target | | :------------------------------------------------ | :--------------- | :--------------- | :------------- | | People educated on underage drinking harms (millions) | 2.0 million | 2.2 million | 10.0 million | | Employee Engagement Index (%) | 83% | 81% | - | | Global Female Leaders (%) | 43% | 44% | 50% | | Global Minority Ethnic Leaders (%) | 46% | 46% | 45% | | Water Efficiency (vs. FY2020 baseline) (%) | (15.8)% | (12.9)% | 30% reduction | | Scope 1 & 2 GHG Emissions (vs. FY2022 baseline) (%) | (18.8)% | (14.4)% | 50% reduction | - Employee engagement remained high at 83%, with 90% of employees proud to work for Diageo187 - Water efficiency improved by 15.8% since the FY2020 baseline, driven by initiatives in East Africa, Scotland, Runcorn, and St. James's Gate187 - Scope 1 and 2 GHG emissions decreased by 18.8% from the FY2022 baseline, primarily due to increased use of liquid biofuels and improved energy efficiency187190 Summary Financial Review This section briefly reviews Diageo's FY2025 financial performance, detailing reported and organic changes in net sales, operating profit, and key metrics, highlighting impacts from exchange rates, acquisitions, and exceptional items FY2025 Key Financial Metrics (Reported vs. Organic) | Metric | Reported | Organic | | :-------------------------- | :------- | :------ | | Net Sales Growth | (0.1)% | 1.7% | | Operating Profit Growth | (27.8)% | (0.7)% | | Operating Profit Margin | 21.4% | 28.0% | | Net Cash Flow from Operating Activities | 4.297 billion USD | - | | Free Cash Flow | 2.748 billion USD | - | | Return on Net Assets at Period End | 19.3% | - | | Average Return on Invested Capital | 13.7% | - | | Basic EPS | 105.9 cents | - | | EPS before exceptional items | 164.2 cents | - | - Reported net sales were 20.245 billion USD, a 0.1% decrease, primarily impacted by unfavorable exchange rates (-0.6%) and acquisition/disposal adjustments (-1.1%), partially offset by hyperinflation adjustments195 - Organic net sales grew by 1.7%, driven by 0.9% volume growth and 0.8% positive price/mix, with strong performance from Don Julio, Guinness, and Crown Royal196 - Exceptional operating items increased to 1.369 billion USD, mainly due to impairment charges (458 million USD for Distill Ventures, 231 million USD for Aviation American Gin) and "Accelerate" program restructuring costs (225 million USD)200 - Basic EPS before exceptional items decreased by 8.6% to 164.2 cents, primarily due to a significant decline in Moët Hennessy associate income and unfavorable exchange rate impacts207 Business Review This section provides a comprehensive overview of Diageo's business performance, segmented by region, category, and brand, highlighting key drivers and strategic initiatives Regional Performance This section disaggregates Diageo's performance by region, presenting reported net sales, operating profit, and key highlights for North America, Europe, APAC, Latin America and Caribbean, and Africa FY2025 Regional Performance (Reported Net Sales and Operating Profit) | Region | Reported Net Sales (million USD) | Reported Operating Profit (million USD) | | :-------------------------- | :----------------------------- | :---------------------------------- | | North America | 7,973 | 2,222 | | Europe | 4,821 | 823 | | APAC | 3,635 | 890 | | Latin America and Caribbean | 1,847 | 509 | | Africa | 1,834 | 283 | - North America (40% of net sales) growth was primarily driven by tequila (Don Julio) and Guinness, with a focus on enhancing marketing effectiveness and route-to-market transformation91246249 - Europe (24% of net sales) achieved positive net sales growth and market share expansion, with double-digit growth in Guinness as a key driver94258261 - APAC (18% of net sales) faced challenges but successfully launched strategic innovations (Johnnie Walker Gold Label, Black Label Ruby, Cîroc Crush RTD) and implemented structural interventions96267 - Latin America and Caribbean (9% of net sales) accelerated growth in the second half, focusing on operational excellence and market share gains, especially in Brazil (Johnnie Walker, Old Parr, Cîroc RTD)86274277279 - Africa (9% of net sales) reported net sales growth, with double-digit growth in Ghana, South Africa, and Tanzania, leveraging investments in the portfolio88285 Category and Brand Review This section provides a detailed review of Diageo's FY2025 performance across major categories and brands, highlighting strong organic net sales growth in tequila and beer, while Scotch and vodka declined FY2025 Major Category Performance (Organic Net Sales Change) | Category | Organic Net Sales Change (%) | Reported Net Sales Share (%) | | :------------------ | :----------------------------- | :--------------------------------- | | Spirits | 0 | 76 | | Scotch | (4) | 22 | | Tequila | 18 | 13 | | Vodka | (5) | 8 | | Canadian Whisky | 3 | 7 | | Rum | (5) | 5 | | Liqueurs | (4) | 5 | | Gin | (4) | 4 | | Indian-Made Foreign Liquor Whisky | 10 | 4 | | Chinese White Spirits | (8) | 3 | | American Whiskey | (9) | 2 | | Beer | 10 | 18 | | Ready to Drink | 2 | 4 | FY2025 Major Brand Performance (Organic Net Sales Change) | Brand | Organic Net Sales Change (%) | | :-------------- | :----------------------------- | | Johnnie Walker | (5) | | Don Julio | 38 | | Guinness | 13 | | Crown Royal | 3 | | Cîroc | (5) | | Baileys | (4) | | Captain Morgan | (6) | | Casamigos | (16) | | Shui Jing Fang | (8) | | McDowell's | 7 | - Tequila organic net sales grew by 18%, with Don Julio growing by 38%; beer organic net sales grew by 10%, primarily driven by Guinness, which grew by 13%290291 - Scotch organic net sales decreased by 4%, with Johnnie Walker down 5%; vodka and rum organic net sales both decreased by 5%290291 Group Financial Review This section provides a detailed analysis of Diageo's FY2025 group financial performance, covering net sales, operating profit, and exceptional items, explaining impacts from exchange rates, acquisitions, and hyperinflation Group Financial Performance (FY2025 vs. FY2024) | Metric | FY2025 (million USD) | FY2024 (million USD) | Organic Change (million USD) | | :------------------------------------------ | :--------------- | :--------------- | :--------------------------- | | Net Sales | 20,245 | 20,269 | 338 | | Gross Profit | 12,173 | 12,198 | 224 | | Marketing Spend | (3,662) | (3,691) | (2) | | Other Operating Items | (4,176) | (2,506) | (260) | | Operating Profit | 4,335 | 6,001 | (38) | | Non-Operating Items | (220) | (70) | - | | Net Finance Charges | (771) | (885) | - | | Share of Post-Tax Profit of Associates and Joint Ventures | 193 | 414 | - | | Profit Before Taxation | 3,537 | 5,460 | - | | Taxation | (999) | (1,294) | - | - Exceptional operating items were a 1.369 billion USD charge (compared to a 56 million USD gain in FY2024), primarily driven by investment impairments (910 million USD), "Accelerate" program restructuring (225 million USD), and a change in French distribution model (145 million USD)301 - Net cash flow from operating activities increased by 192 million USD to 4.297 billion USD, and free cash flow increased by 139 million USD to 2.748 billion USD210 - Average Return on Invested Capital (ROIC) decreased to 13.7% (from 15.8% in FY2024), mainly due to lower Moët Hennessy associate income and unfavorable exchange rate impacts213 - Net debt increased to 21.854 billion USD (from 21.017 billion USD in FY2024), primarily due to exchange rate movements on non-USD denominated debt214 Spirit of Progress "Spirit of Progress" is Diageo's ESG action plan, focusing on business integrity, positive drinking, grain-to-glass sustainability, and inclusion and diversity, regularly reviewed against stakeholder feedback and evolving regulations - "Spirit of Progress" priorities include embedding integrity, upholding human rights, building culture, protecting people (health and safety), promoting positive drinking, preserving natural resources (sustainability), and championing inclusion and diversity326327 - Governance of "Spirit of Progress" is overseen by both the Board and the Executive Committee, with the CEO accountable for performance331 - Diageo is monitoring and preparing to comply with the EU's Corporate Sustainability Reporting Directive (CSRD) and UK Sustainability Reporting Standards (aligned with ISSB) by FY2028333 - Updated Science Based Targets initiative (SBTi) emissions reduction targets were approved in FY2025329 Business Integrity and Human Rights Diageo is committed to business integrity and human rights, implementing annual training, a confidential SpeakUp service, and a KYBP program for third-party risk management, focusing on prominent human rights risks - All employees are required to complete annual Code of Business Conduct training and certification346347 - SpeakUp is a global, confidential grievance and whistleblowing service, available in 20 languages, for reporting potential misconduct349 - The Know Your Business Partner (KYBP) program aims to identify potential risks with third parties and strengthened its governance process in FY2025350 - Identified salient human rights risks include health and safety, wages and benefits, working hours, harassment and bullying, discrimination, freedom of association and collective bargaining, child labor, forced labor, water sanitation, and land rights356 - Supplier compliance targets for high-risk suppliers increased from 65% to 85%, requiring independent ethical audits360 Our People and Culture Diageo fosters a highly engaged and diverse workforce with 83% employee engagement, prioritizing talent development through internal promotions and programs like "Horizons" and "Impact," while promoting well-being and agile culture Employee Engagement and Diversity | Metric | FY2025 | FY2024 | External Benchmark | | :-------------------------------- | :-------- | :-------- | :----------------- | | Overall Engagement Score (%) | 83% | 81% | 76% | | Proud to work for Diageo (%) | 90% | - | 78% | | Global Female Leaders (%) | 39% | 39% | - | - In FY2025, 79% of leadership appointments were internal talent, with 21% being international moves and 16% cross-functional moves373 - The "Impact" development program for people managers and "Horizons" program for emerging general managers were launched to foster team growth and high performance374375 - The "Celebrate" global recognition platform received over 140 thousand nominations, reinforcing "Accelerate behaviors" for speed and agility378 - The "One World" global employee share plan was launched, awarding 500 GBP in free shares to 17 thousand eligible employees, adding 15 thousand new Diageo employee shareholders387 Health and Safety Diageo prioritizes employee health and safety through a culture of collective responsibility, global policies, and the "Working Safer Together" strategy, resulting in a reduced Lost Time Accident Frequency Rate (LTAFR) in FY2025 Lost Time Accident Frequency Rate (LTAFR) | Year | LTAFR (per thousand full-time employees) | | :--- | :--------------------- | | 2025 | 0.82 | | 2024 | 1.06 | | 2023 | 0.91 | - In FY2025, the company invested over 40 million USD in shuttle warehousing to enhance safety and productivity403 - A governance baseline culture survey was launched for the first time across the global supply chain organization, revealing high levels of health and safety maturity (86% at manufacturing sites, 84% at technical centers)410 - Behavioral standards workshops have been implemented at 19 standalone sites and expanded to Mexico, Turkey, and Australia to enhance safety culture411 Promote Positive Drinking Diageo is dedicated to improving drinking habits through education, promoting moderation, and responsible marketing, with initiatives like SMASHED, WSOTR, and DRINKiQ, alongside expanding its non-alcoholic portfolio Positive Drinking Targets and Performance | Target Area | 2030 Target | 2025 Cumulative Progress | 2025 Performance | | :-------------------------- | :------------- | :----------------------- | :--------------- | | Underage Drinking (SMASHED) | 10 million people educated | 8.2 million people | 2.0 million people educated | | Drink Driving (WSOTR) | 5 million educational experiences | 3.8 million experiences | 1.6 million experiences | - Employees are confident discussing positive drinking, with 93% feeling confident in both professional and personal settings425 - A comprehensive "Take a Minute. Make a Plan. Never Drink and Drive" campaign was launched in the US, reaching over 100 million people and redeeming over 1 million Uber ride discounts431 - The non-alcoholic portfolio expanded from 3 products in FY2020 to 20 in FY2025, launched across 15 markets434 - An AI-based assistant was deployed to support human review of Diageo Marketing Code (DMC), reducing content review time while maintaining high compliance standards439 Pioneering Grain to Glass Sustainability Diageo's sustainability strategy addresses climate change and natural resource depletion, particularly water and agriculture, through revised decarbonization and packaging targets, water efficiency investments, and regenerative agriculture initiatives - Climate risks are intensifying, with water stress identified as the greatest physical risk impacting operations, agricultural raw materials, and license to operate446469 - Revised decarbonization targets, approved by SBTi, align with the Paris 1.5°C pathway, including near-term (2030) and long-term (2040/2050 net zero) goals for direct operations and value chain emissions450526 - Packaging targets were reformulated to focus on increasing recycled content in packaging (50% by 2030) and reporting lightweighting case studies, rather than specific weight reduction targets490549 - 358 million USD has been invested to date (with a planned 1.2 billion USD by 2030) to accelerate water stewardship and GHG emissions reduction492 - Natural risk assessments identified agave, broken rice, sugarcane, sorghum, and barley as agricultural raw materials with the highest relative natural impact, primarily due to water scarcity486 Champion Inclusion and Diversity Diageo champions inclusion and diversity to drive performance, targeting 50% female leaders by 2030 and exceeding its minority ethnic leader goal, supported by expanded parental leave, talent development, and inclusive marketing Leadership Diversity Targets and Performance | Metric | 2030 Target | 2025 Performance | | :-------------------------------- | :------------ | :--------------- | | Female Leaders (%) | 50% | 43% | | Minority Ethnic Leaders (%) | 45% | 46% | - The "Parental Leave" policy has expanded to 30 countries, and "Fertility Support Guidelines" have extended to Australia, Central America and Caribbean (CCA), and Middle East and North Africa (MENA) markets570571 - The "Learning for Life" (L4L) program has reached 35 thousand people in 34 countries, with over 50% women, providing business and hospitality skills training579 - A diverse supplier base has been established in 28 countries, partnering with over 930 diverse suppliers, of which over 60% are women-owned584 - Inclusive marketing campaigns, such as Johnnie Walker's "Pass the Mic" and Guinness's partnership with IDA Sports, aim to reflect all consumers and promote diversity in media and sports586 Our ESG Reporting Approach Diageo's ESG reporting emphasizes transparency and continuous improvement, aligning with GRI and SASB frameworks while preparing for CSRD and ISSB, providing comprehensive disclosures through its reporting suite - The ESG reporting suite includes the Annual Report, ESG Reporting Index, and Non-Financial Reporting Boundaries and Methodology597 - Reporting is voluntarily conducted in accordance with the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) frameworks332 - The company is monitoring and planning to apply the EU's Corporate Sustainability Reporting Directive (CSRD) and UK Sustainability Reporting Standards (aligned with ISSB) as required333 Our Principal Risks and Risk Management Diageo employs a robust risk management approach, integrating internal controls and business integrity to identify, assess, and mitigate significant risks over a three-to-five-year horizon, overseen by the Audit Committee - Effective risk management is comprehensive and integrated, focusing on significant risks that could impact performance or reputation601 - Principal risks are assessed over a three-to-five-year horizon, considering risk velocity (the speed at which a risk materializes)607 - Principal risks include: climate change and sustainability, regulation, trade barriers and indirect taxes, geopolitical volatility and business disruption, macroeconomic and financial volatility, tax compliance and management, supply chain disruption, cyber and IT resilience, business ethics and integrity, consumer demand disruption, product quality, food safety and counterfeiting, and transformation612 - Artificial Intelligence (AI) is identified as an emerging risk area within existing principal risks, with the company embedding an AI governance approach616 Viability Statement The Board assessed Diageo's long-term viability over a three-year period, confirming its financial capacity and resilience against severe but plausible downside scenarios, concluding strong liquidity and continued operations - The viability assessment period is three years, aligned with the Group's strategic plan651 - Modeled severe but plausible risks include: global economic recession, increased geopolitical tensions, changes in consumer choice and regulatory impact, and climate change and natural disasters653 - Even under severe scenarios, the Group's liquidity is expected to remain strong, with mitigating actions including reducing discretionary spend and temporarily suspending/reducing dividends657 - The Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year assessment period658 Governance Report This section details Diageo's corporate governance framework, including the Board's role, committee structures, and compliance with governance codes, ensuring effective oversight and long-term success Chair's Introduction to Governance Sir John Manzoni introduces the governance report, emphasizing the Board's role in leadership, strategic direction, and ensuring long-term sustainable success, highlighting adjustments to processes and stakeholder engagement - The Board is responsible for the health of the company, providing leadership and strategic direction to achieve long-term sustainable success675 - Key highlights for FY2025 included deep dives into the Africa business, engagement with sell-side analysts, welcoming new directors Nik Jhangiani and Julie Brown, and Sir John Manzoni's assumption of the Chair role672 - Board actions included adjusting ways of working, reshaping strategic focus, active portfolio management, improving investor engagement, and continued focus on talent pipeline679 Corporate Governance Structure and Division of Responsibilities This section details Diageo's corporate governance framework, including the Board, its committees, and management committees, clarifying the clear separation of responsibilities among key leadership roles to ensure effective oversight - The governance framework includes the Board, Audit Committee, Nomination Committee, Remuneration Committee, Executive Committee, Finance Committee, Audit & Risk Committee, and Filings Assurance Committee682683 - There is a clear separation of responsibilities between the Chair, Senior Independent Director, and Chief Executive Officer, approved by the Board731 - Diageo fully applied the principles and complied with the provisions of the 2018 UK Corporate Governance Code in FY2025686 Board of Directors This section provides biographies of Board members, highlighting their diverse skills and experience, details the Board's composition, diversity, responsibilities, and compliance with corporate governance requirements - The Board comprises a Non-Executive Chair, one Executive Director, a Senior Independent Director, and six independent Non-Executive Directors724 - The Board's diversity policy aims for at least 40% female directors (currently 75%) and at least one minority ethnic director (currently four directors voluntarily disclose as minority ethnic)725 - The Board manages company affairs according to a formal schedule of matters reserved for its decision, considering stakeholder interests and "Spirit of Progress" objectives in its decisions727 - All Non-Executive Directors are deemed independent, with their external interests and potential conflicts regularly reviewed736 Executive Committee This section lists Diageo's Executive Committee members, detailing their roles and experience, and outlines the committee's function in supporting the CEO to execute strategy and achieve financial and non-financial targets - Executive Committee members include: President, Global Supply & Procurement and Chief Sustainability Officer (Ewan Andrew), President, North America (Sally Grimes), President, Latin America & Caribbean (Alvaro Cardenas), General Counsel & Company Secretary (Randall Ingber), Chief Marketing Officer (Cristina Diezhandino), Global Corporate Relations Director (Daniel Mobley), President, Africa (Hina Nagarajan), Chief Human Resources Officer (Louise Prashad), President, Europe & Chief Commercial Officer (Dayalan Nayager), Managing Director & CEO, Diageo India (Praveen Someshwar), and President, APAC, Global Travel & India (John O'Keeffe)709710711712714715716717719720721722723 - The Executive Committee aligns its agenda with growth ambitions and focuses on delivering financial and non-financial performance objectives806 Corporate Governance Report This section details Diageo's compliance with UK and US corporate governance rules, outlining the Board's composition, diversity, independence, responsibilities, and activities, emphasizing robust internal controls and risk management - Diageo fully complied with the 2018 UK Corporate Governance Code and relevant Financial Conduct Authority (FCA) Listing Rules729 - The Board's diversity policy aims for at least 40% female directors and at least one minority ethnic director, both of which are currently met725 - An internal evaluation of Board effectiveness was conducted, assessing its composition, agenda, support, and committee performance807808 - The Board monitors company culture through site visits, employee surveys (Your Voice), the SpeakUp whistleblowing mechanism, and employee engagement programs822823824826 - The Board confirmed a robust assessment of principal and emerging risks and reviewed the effectiveness of internal control and risk management systems835836 Audit Committee Report The FY2025 Audit Committee report outlines its oversight of financial information integrity, external reporting, internal controls, and risk management, detailing its review of financial statements, compliance, and external auditor supervision - The Audit Committee oversees the integrity of financial information, external reporting, internal controls, and risk management, including internal audit, controls, business integrity, and compliance848 - The Committee reviewed quarterly trading updates, interim/annual results, and Form 20-F, focusing on key judgments, significant accounting policies, and disclosures859 - Julie Brown was identified as an independent Audit Committee financial expert with relevant financial experience890 - Significant issues considered included the nature and scale of one-off items, carrying value of assets (goodwill, brands, investments in associates and joint ventures), uncertain tax positions for Brazilian indirect taxes, valuation of retirement benefit obligations, and material legal matters892893 - Cybersecurity risk management is a key focus area, with practices aligned to industry standards and regularly benchmarked by independent experts894897900 Nomination Committee Report The FY2025 Nomination Committee report details its role in Board and Executive Committee succession planning, talent strategy, and diversity, highlighting CEO selection oversight and new appointments - The Committee oversees succession planning for the Board and Executive Committee, ensuring a pipeline of high-caliber, diverse candidates908921923 - The comprehensive formal search process for Debra Crew's successor as CEO was overseen; Nik Jhangiani was appointed interim CEO911 - Nik Jhangiani was welcomed as CFO, and Julie Brown as Non-Executive Director and Chair of the Audit Committee912 - Changes to the Board Committee composition were overseen, moving to a more traditional committee structure with fewer Non-Executive Directors from July 1, 2025916929 - The Board's diversity policy sets specific targets of at least 40% female directors and at least one minority ethnic director, both currently met934 Directors' Remuneration Report The Directors' Remuneration Report outlines FY2025 policy and implementation, aligning executive pay with strategy and shareholder interests, detailing incentive outcomes, executive changes, and planned FY2026 incentive adjustments - The financial component of the FY2025 Annual Incentive Plan (AIP) paid out at 40% of the maximum, with overall payouts for Debra Crew, Nik Jhangiani, and Lavanya Chandrashekar at 42.0%, 44.4%, and 42.0%, respectively956957 - For the Diageo Long Term Incentive Plan (DLTIP) ending June 30, 2025, financial metrics did not meet the minimum performance level, but ESG metrics achieved 62.5% of the maximum (equivalent to 12.5% of the total performance share award)958959960 - Debra Crew resigned as CEO; Nik Jhangiani was appointed interim CEO, with Debra's departure arrangements compliant with company policy9501170 - New incentives for FY2026 will include adjusted operating cash flow in the AIP, adjusted Return on Invested Capital (ROIC) in DLTIP performance shares, an updated TSR peer group, and ESG targets focused on positive drinking, carbon, and water measures96211921193 - Salaries for most Executive Committee members will be frozen for FY2026, with Nik Jhangiani receiving a 300,000 GBP salary supplement as interim CEO9631184 Directors' Report The Directors' Report presents the FY2025 audited consolidated financial statements, confirming company status, director information, and auditor details, and discusses significant agreements, related party transactions, and major shareholders - Diageo plc is a public limited company registered in England and Wales (registration number 23307)1211 - All Directors will retire by rotation and seek re-election at the Annual General Meeting1212 - PricewaterhouseCoopers LLP has indicated its willingness to continue as auditor, and a resolution for its re-appointment will be proposed at the Annual General Meeting1213 - Significant agreements contain change of control provisions, notably with LVMH regarding the 34% investment in Moët Hennessy, where LVMH may require sale of its interest or dissolution of the joint venture if a competitor gains control of Diageo12161217 - Major shareholders (3% or more) include BlackRock Investment Management (UK) Limited (5.89%), Capital Research and Management Company (4.99%), and Massachusetts Financial Services Company (4.99%)12191220 Financial Statements This section presents Diageo's consolidated financial statements, including the income statement, balance sheet, cash flow statement, and notes on accounting policies, providing a comprehensive view of its financial position and performance Independent Auditors' Report to the Members of Diageo plc PricewaterhouseCoopers LLP issued an unmodified opinion on Diageo's FY2025 consolidated and company financial statements, confirming fair presentation under IFRS and detailing key audit matters and going concern conclusions - An unmodified opinion was issued on the financial statements prepared in accordance with IFRS as adopted in the UK and IFRS as issued by the IASB12511253 - Key audit matters included: carrying value of goodwill, brands, and investments in associates/joint ventures (2.949 billion USD for goodwill, 9.381 billion USD for brands, 5.334 billion USD for associates/joint ventures); uncertain tax positions for Brazilian indirect taxes (906 million USD contingent liability); valuation of retirement benefit obligations (7.776 billion USD obligation); and carrying value of investments in subsidiaries (77.297 billion USD)126112621272127312761278 - Group materiality was set at 250 million USD (5% of profit before tax and exceptional items)1301 - No material uncertainties were identified that could cast significant doubt on the Group's ability to continue as a going concern for at least 12 months1305 - The impact of climate change on the financial statements was considered during the audit, with no significant impact identified for the FY2025 audit12971298 Consolidated Income Statement This section presents the consolidated income statement for FY2025, FY2024, and FY2023, showing a decline in FY2025 net sales, operating profit, and profit for the year, primarily due to increased exceptional items Consolidated Income Statement Highlights | Metric | FY2025 (million USD) | FY2024 (million USD) | FY2023 (million USD) | | :------------------------------------------ | :--------------- | :--------------- | :--------------- | | Sales | 27,964 | 27,891 | 28,270 | | Excise duties | (7,719) | (7,622) | (7,715) | | Net Sales | 20,245 | 20,269 | 20,555 | | Cost of sales | (8,072) | (8,071) | (8,289) | | Gross Profit | 12,173 | 12,198 | 12,266 | | Marketing spend | (3,662) | (3,691) | (3,663) | | Other operating items | (4,176) | (2,506) | (3,056) | | Operating Profit | 4,335 | 6,001 | 5,547 | | Non-operating items | (220) | (70) | 364 | | Finance income | 480 | 400 | 409 | | Finance expenses | (1,251) | (1,285) | (1,121) | | Share of post-tax profit of associates and joint ventures | 193 | 414 | 443 | | Profit before taxation | 3,537 | 5,460 | 5,642 | | Taxation | (999) | (1,294) | (1,163) | | Profit for the year | 2,538 | 4,166 | 4,479 | | Basic EPS (cents) | 105.9 | 173.2 | 196.3 | - Operating profit significantly decreased from 6.001 billion USD in FY2024 to 4.335 billion USD in FY20251338 - Profit for the year decreased from 4.166 billion USD in FY2024 to 2.538 billion USD in FY20251338 Consolidated Statement of Comprehensive Income This section presents the consolidated statement of comprehensive income, detailing items not reclassified to profit or loss and those that may be, with total comprehensive income for the year decreasing to 3.341 billion USD in FY2025 Consolidated Statement of Comprehensive Income Highlights | Metric | FY2025 (million USD) | FY2024 (million USD) | FY2023 (million USD) | | :------------------------------------------------ | :--------------- | :--------------- | :--------------- | | Net remeasurement of retirement benefit plans | (2) | (62) | (567) | | Exchange differences on translation of foreign operations | 805 | (423) | 85 | | Effective portion of changes in fair value of cash flow hedges | 19 | 9 | (39) | | Hyperinflation adjustment (net of tax) | 264 | 365 | 229 | | Other comprehensive income/(loss) for the year, net of tax | 803 | (485) | (482) | | Profit for the year | 2,538 | 4,166 | 4,479 | | Total comprehensive income for the year | 3,341 | 3,681 | 3,997 | - Total comprehensive income for the year decreased from 3.681 billion USD in FY2024 to 3.341 billion USD in FY20251339 - Exchange differences on translation of foreign operations resulted in a 805 million USD gain in FY2025, a significant improvement from a 423 million USD loss in FY20241339 Consolidated Balance Sheet This section presents the consolidated balance sheet as of June 30, 2025, and 2024, showing total assets increased to 49.322 billion USD in FY2025, driven by increases in property, plant, equipment, inventories, and cash Consolidated Balance Sheet Highlights | Metric | FY2025 (million USD) | FY2024 (million USD) | | :-------------------------------- | :--------------- | :--------------- | | Total Non-Current Assets | 31,825 | 30,348 | | Total Current Assets | 17,497 | 15,126 | | Total Assets | 49,322 | 45,474 | | Total Current Liabilities | (10,712) | (9,868) | | Total Non-Current Liabilities | (25,432) | (23,536) | | Total Liabilities | (36,144) | (33,404) | | Net Assets | 13,178 | 12,070 | | Total Equity | 13,178 | 12,070 | - Inventories increased from 9.720 billion USD in FY2024 to 10.658 billion USD in FY20251342 - Cash and cash equivalents significantly increased from 1.130 billion USD in FY2024 to 2.200 billion USD in FY20251342 - Non-current borrowings increased from 18.616 billion USD in FY2024 to 20.820 billion USD in FY20251342 Consolidated Statement of Cash Flows This section presents the consolidated cash flow statement for FY2025, FY2024, and FY2023, showing increased net cash inflow from operating activities and a net increase in cash and cash equivalents in FY2025 Consolidated Cash Flow Statement Highlights | Metric | FY2025 (million USD) | FY2024 (million USD) | FY2023 (million USD) | | :-------------------------------- | :--------------- | :--------------- | :--------------- | | Net cash inflow from operating activities | 4,297 | 4,105 | 3,636 | | Net cash outflow from investing activities | (1,720) | (1,595) | (1,426) | | Net cash outflow from financing activities | (1,494) | (3,106) | (3,041) | | Net increase/(decrease) in cash and cash equivalents | 1,083 | (596) | (831) | | Net cash and cash equivalents at end of period | 2,178 | 1,109 | 1,768 | - Cash generated from operations increased from 6.065 billion USD in FY2024 to 6.210 billion USD in FY20251347 - Purchases of property, plant and equipment, and computer software increased from 1.510 billion USD in FY2024 to 1.612 billion USD in FY20251347 - Proceeds from issue of bonds increased from 2.225 billion USD in FY2024 to 3.943 billion USD in FY2025, alongside increased repayment of bonds1347 Accounting Information and Policies This section outlines the basis of preparation for consolidated financial statements, adhering to IFRS, detailing policies on going concern, consolidation, foreign currency, key accounting estimates, and hyperinflation accounting - The financial statements are prepared in accordance with IFRS as adopted in the UK and IFRS as issued by the IASB, on a historical cost convention basis and a going concern assumption1349 - The functional currency of Diageo plc, the parent company, is the US dollar1353 - Key accounting estimates and judgments include taxation, brands/goodwill/other intangible assets/contingent consideration, retirement benefits, and contingent liabilities/legal proceedings1358 - Hyperinflation accounting was applied to operations in Turkey, Ghana, and Venezuela1359 - Climate change scenario analysis conducted in 2025 (in line with TCFD recommendations) did not identify a material financial impact on impairment assessments for the year1366 Results for the Year This section details the Group's performance, including segment information, operating costs, exceptional items, finance income/expenses, and share of associate profits, presenting a segment analysis based on management reporting - Sales include revenue from contracts with customers for goods sold, royalties, and rent receivable; net sales are sales less excise duties13671368 - Exceptional items are disclosed separately if they are unusual or non-recurring in nature and of a size that could distort performance13701383 - Segment information is presented by geographical location of third-party sales, consistent with management reporting to the Executive Committee13721374 Segment Operating Profit (before exceptional items, FY2025 vs. FY2024) | Region | FY2025 (million USD) | FY2024 (million USD) | | :-------------------------- | :--------------- | :--------------- | | North America | 3,053 | 3,236 | | Europe | 1,302 | 1,379 | | APAC | 930 | 1,063 | | Latin America and Caribbean | 528 | 502 | | Africa | 283 | 131 | | Corporate and other | (392) | (366) | | Total | 5,704 | 5,945 | Operating Assets and Liabilities This section details the Group's operating assets and liabilities, including recent acquisitions, disposals, and retirement benefit plans, outlining accounting policies for business combinations, inventories, receivables, payables, and provisions - Business combinations are accounted for using the acquisition method, with identifiable assets, liabilities, and contingent liabilities measured at fair value at the acquisition date1456 - Inventories are measured at the lower of cost and net realizable value, with all maturing inventories classified as current assets1565 - Trade and other receivables are initially measured at fair value less transaction costs, and subsequently at amortized cost less any discounts and provision for doubtful debts1566 - Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount can be reliably estimated1568 Inventories (FY2025 vs. FY2024) | Category | FY2025 (million USD) | FY2024 (million USD) | | :-------------------------- | :--------------- | :--------------- | | Raw materials and consumables | 604 | 639 | | Work in progress | 131 | 118 | | Maturing inventories | 8,677 | 7,832 | | Finished goods and goods for resale | 1,246 | 1,131 | | Total Inventories | 10,658 | 9,720 | Risk Management and Capital Structure This section details Diageo's policies and procedures for managing its capital structure and financial risks, including currency, interest rate, and commodity price risks, aiming for capital efficiency and flexibility - The finance function conducts financial operations within a Board-approved framework of policies and guidelines, managing funding, liquidity, and foreign exchange, interest rate, and commodity price risks15921593 - Company policy is to hedge anticipated net foreign exchange exposures on transactional cash flows for major currency pairs for up to 36 months, targeting 75% net exposure cover at the operating profit level for the current financial year1599 - Company policy is to maintain fixed rate borrowings between 70% and 90% of anticipated net borrowings to manage interest rate risk1600 - The target is to maintain a ratio of adjusted net borrowings to adjusted EBITDA between 2.5x and 3.0x, broadly consistent with an A-grade credit rating1653 Adjusted Net Borrowings to Adjusted EBITDA | Metric | FY2025 | FY2024 | | :-------------------------------- | :--- | :--- | | Adjusted Net Borrowings (million USD) | 22,263 | 21,446 | | Adjusted EBITDA (million USD) | 6,645 | 7,037 | | Ratio | 3.4 | 3.0 | Additional Information This section provides supplementary details, including unaudited financial information, cautionary statements regarding forward-looking statements, an independent assurance report on selected ESG data, and other operational specifics Unaudited Financial Information This section defines and reconciles non-GAAP financial measures used for strategic planning, reporting, and incentive purposes, detailing the calculation of organic movements, EPS before exceptional items, and free cash flow - Non-GAAP measures (organic movements, EPS before exceptional items, free cash flow, operating cash conversion, average return on invested capital, and adjusted net borrowings to adjusted EBITDA ratio) provide additional valuable information for understanding performance1801 - Organic movements are calculated on a constant exchange rate basis and exclude the impact of exceptional items, certain fair value remeasurements, hyperinflation, and acquisitions and disposals1804 FY2025 Organic Movement Highlights | Metric | Organic Movement (%) | | :-------------------------- | :------------------- | | Volume | 1% | | Sales | 2% | | Net Sales | 2% | | Marketing Spend | 0% | | Operating Profit before exceptional items | (1)% | FY2025 Free Cash Flow and Operating Cash Conversion | Metric | FY2025 (million USD) | FY2024 (million USD) | | :-------------------------- | :--------------- | :--------------- | | Net cash inflow from operating activities | 4,297 | 4,105 | | Free Cash Flow | 2,748 | 2,609 | | Operating Cash Conversion (%) | 102.0% | 99.6% | Cautionary Statement Concerning Forward-Looking Statements This section provides a cautionary statement regarding forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ materially, especially for ESG-related outlooks - Forward-looking statements involve risks and uncertainties, relate to future events, and depend on circumstances beyond Diageo's control1863 - ESG-related forward-looking statements carry additional inherent risks and uncertainties due to evolving data, models, and methodologies, and a lack of consistent standards1864 - Factors that could cause material differences in actual results include: economic/political developments, climate change impacts, changes in consumer preferences, changes in tax environment, production cost changes, litigation, regulatory developments, cyberattacks, and supply chain disruptions1863 Independent Limited Assurance Report to the Directors of Diageo plc on selected information PricewaterhouseCoopers LLP issued a limited assurance conclusion on selected non-financial information (ESG metrics) in Diageo's FY2025 Annual Report, finding no material misstatements based on executed procedures - PricewaterhouseCoopers provided a limited assurance conclusion on selected ESG metrics in the Annual Report1868 - No indications were found that the assured information was not prepared in all material respects in accordance with Diageo's Non-Financial Reporting Boundaries and Methodology1868 - Assured metrics included water use efficiency, GHG emissions, Lost Time Accident Frequency Rate, female/minority ethnic leaders, SMASHED program participants, and water replenishment capacity1869 - The limited assurance engagement was performed in accordance with International Standard on Assurance Engagements 3000 (Revised) and International Standard on Assurance Engagements 3410 (for GHG emissions)1873 Other Additional Information This section provides supplementary operational information, including spirits and beer production facilities, maturing inventories, raw material sourcing, competition, R&D, trademarks, seasonality, employees, and the regulatory environment - Diageo owns 31 Scotch whisky distilleries in Scotland, 2 in Canada, 5 in the US, and 1 in China; tequila is produced in Mexico, and Guinness's main brewery is in Dublin, Ireland18901897 Maturing Inventories (FY2025 vs. FY2024) | Category | FY2025 (million USD) | FY2024 (million USD) | | :-------------------------- | :--------------- | :--------------- | | Whisky | 7,232 | 6,290 | | - of which Scotch Whisky | 5,659 | 4,862 | | Other | 1,445 | 1,542 | | Total Maturing Inventories | 8,677 | 7,832 | - Over 500 million USD has been invested in tequila