DIAGEO PRELIMINARY RESULTS YEAR ENDED 30 JUNE 2016
1 A CLEAR STRATEGY DELIVERED THROUGH OUR SIX PRIORITIES Keep premium core vibrant
Increase participation in mainstream spirits
Continue to win in reserve
Drive innovation at scale
Build advantaged routes to consumer
Embed productivity in our culture to drive out costs to invest in growth
SUPPORTED BY TALENT AND OUR POSITIVE CONTRIBUTION TO SOCIETY AND THE ENVIRONMENT 2 CLEAR GOALS
Defined by our performance ambition to be
One of the best performing, most trusted and respected consumer goods companies in the world.
3 CLEAR MEASURES OF OUR PROGRESS
KPIs aligned to our measures
1) Efficient Growth and 2) Value Creation • KPIs: volume growth, NSV growth, operating margin, FCF, EPS ,ROIC, TSR
3) Credibility and trust • KPIs: Alcohol in society programmes, water efficiency and carbon
4) Motivated people • KPIs: Employee engagement
4 A GOOD SET OF RESULTS DELIVERING ON OUR GOALS FOR THE YEAR Return to volume and NSV growth and growth in US spirits Margin expansion Strong cash delivery Creating momentum
5 F16 ENABLED BY STRONG EXECUTION
Improved consumer focus
Strengthened our portfolio and our business
Taking out cost to invest in growth
Consistently driving cash conversion
6 GOOD FULL YEAR RESULTS WITH SECOND HALF MOMENTUM
Organic volume growth FY16 +1.3%, H2 +1.6%
Organic net sales growth FY16 +2.8%, H2 +3.8%
Organic operating margin +19bps in line with H1
Free cash flow increased £134m to £2,097m Pre exceptional eps increased +1%
Recommended final dividend up +5%
7 F16: 2.8% ORGANIC NET SALES GROWTH AND IMPROVED PORTFOLIO FOCUS
£m F16 F15
PRIOR YEAR NET SALES 10,813 10,258
Acquisitions & Disposals (310) 896
Exchange (172) (337)
Asia Pacific net sales reclassification (122) -
Organic Movement 276 (4)
CURRENT YEAR NET SALES 10,485 10,813
8 VOLUME GROWTH UNDERPINNED TOP LINE PERFORMANCE
Organic volume growth Organic net sales growth
3.8%
1.6% 2.8% 1.3% 1.0% 1.8%
0.0%
(1.3%) F15 H1 F16 H2 F16 F16 9 EACH REGION DELIVERED ORGANIC VOLUME GROWTH IMPROVEMENT
Organic volume growth
F15 8.8% 7.4% F16
1.9% 1.1% 1.3%
(0.5%) (0.1%) (1.3%) (2.0%) (2.9%) (3.4%)
(7.4%)
North America Europe, Russia & Africa Latin America & Asia Pacific Diageo Turkey Carribean 10 NORTH AMERICA, EUROPE, RUSSIA & TURKEY ARE OVER HALF OF THE BUSINESS AND DROVE 70% OF OUR GROWTH F16 organic net sales movement (£m) 34 4 276
34 5
102
97
North Europe, Russia Africa Latin America Asia Pacific Other* Diageo America & Turkey & Carribean
Organic +2.9% +4.3% +2.6% +0.6% +1.6% +2.8% growth 11 *Other includes Guinness Storehouse and licensing sales IN THE US…
FAST GROWING BRANDS …AND THE BIGGEST BRANDS MAINTAINED THEIR PERFORMANCE… ARE BACK IN GROWTH
F15 34% 35% F16 28% 21%
12% 9% 10% 7% 7% 5% 4% 2% 2% 1%
(2%) (4%) (3%) (7%) (13%) (17%) Buchanan's Crown Don Julio Bulleit Smirnoff Captain Johnnie Ketel One Tanqueray Baileys Royal Morgan Walker Vodka
Organic net sales growth 12 NORTH AMERICA, EUROPE, RUSSIA & TURKEY ARE OVER HALF OF THE BUSINESS AND DROVE 70% OF OUR GROWTH F16 organic net sales movement (£m) 34 4 276
34 5
102
97
North Europe, Russia Africa Latin America Asia Pacific Other* Diageo America & Turkey & Carribean
Organic +2.9% +4.3% +2.6% +0.6% +1.6% +2.8% growth 13 *Other includes Guinness Storehouse and licensing sales GLOBAL GIANTS: ALL BACK IN GROWTH
Organic net sales growth* F15 12% F16 5% 3% 4% 4% 2% 1% 0%
(2%) (4%) (6%) (9%)
Johnnie Walker Smirnoff Captain Guinness Baileys Tanqueray Morgan
*Organic growth includes reserve brands and excludes ready-to-drink 14 OUR KEY SPIRITS CATEGORIES ARE ALL IN GROWTH Organic net sales growth 169% F15 17% F16 14% 12% 8% 8% 6% 5% 5% 3% 3% 3% 3% 1% * 0% 1%
(1%) (3%) (4%) (4%) (5%) Scotch Vodka North Rum **IMFL Liqueurs Gin Raki Tequila Chinese Cachaca American Whisky White Whiskey Spirits
% of Net 24% 13% 8% 7% 5% 5% 3% 2% 1% 1% 0% Sales *No F15 comparison for organic growth 15 **Indian made foreign liquor ORGANIC OPERATING PROFIT GREW 3.5%
£m F16 F15
PRIOR YEAR OPERATING PROFIT* 3,066 3,134
Acquisitions & Disposals (74) 71
Exchange (83) (161)
Organic Movement 99 22
CURRENT YEAR OPERATING PROFIT* 3,008 3,066
* Excludes exceptionals 16 ORGANIC MARGIN EXPANDED BY 19 BPS
0.78% 1.14% 28.69%
0.33% 28.35% 0.55%
0.32% 0.14%
F15* Exchange Acquisitions Gross Margin Marketing Overheads Asia Pacific F16* and Disposals & Other Net Sales Adjustment * Excludes exceptionals 17 MARKETING EFFICIENCIES CONTRIBUTED TO MARGIN EXPANSION
£m F16
2015* 1,573 Procurement efficiencies (81) Other drivers: Innovation in the US (13) USL related party agreements (16) Scotch in China (12) Underlying 6% increase 85 2016* 1,536
* Adjusted for exchange, acquisitions and disposals 18 CONTINUED STRONG DELIVERY OF FREE CASH FLOW
152 93 137 5 2,097 1,963
(83) (170)
2015 Capex Exchange (i) Operating profit Working capital Interest and tax Other (iii) 2016 before exchange movement (ii)
(i) Exchange - on operating profit before exceptional items. (ii) Operating profit excluding exchange, including operating exceptional items and excluding depreciation and amortisation, post- employment payments and non-cash items. (iii) Other items include post-employment payments, dividends received from associates and joint ventures, loans and other investments. 19 AVERAGE WORKING CAPITAL REDUCED OVER THE PAST TWO YEARS
Average Working Capital* as % of NSV 5.5% (ex India) 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Jun-14 Jun-15 Jun-16
* Excluding maturing stock 20 REDUCTION IN AVERAGE NET DEBT DROVE 20% REDUCTION IN FINANCE CHARGES
£m F16 F15 Movement
Closing net debt £m (8,635) (9,527) 892 Average net debt £m (9,245) (10,459) 1,214
Net interest charge £m (309) (360) 51 Net other finance charge £m (18) (52) 34 Net finance charges £m (327) (412) 85
Effective interest rate % 3.3 3.5 0.2 Adjusted net debt* / EBITDA x 2.7 2.7 -
21 * Includes net debt and post employment liabilities F17 EXCHANGE IMPACT FORECAST TO BE POSITIVE FOR NET SALES AND OPERATING PROFIT, ADVERSE FOR INTEREST Exchange rates Total Exchange Impact
Translation rate F16* F17** F16 F17 $/£ 1.48 1.31 £m €/£ 1.34 1.19 Net Sales (172) 1,100
* Average rate **Current spot rate Operating (83) 370 profit Transaction rate Interest (16) (20) 1 2 F16 F17 Charge $/£ 1.55 1.47 €/£ 1.28 1.24
1. Average rate including. hedging 2. 15% of £/$ exposure unhedged 62% of €/£ exposure unhedged 22 EPS BEFORE EXCEPTIONALS UP 1%
3.4 89.4 88.8 1.8 (1.4) 4.0 (0.8)
(3.3) (3.0)
2015 Exchange Acquisitions Operating Associates Finance Tax Non-controlling 2016 on operating and disposals profit and joint charges interests profit excluding ventures exchange
F15 F16 Full Year Dividend 56.4 pence 59.2 pence +5%
23 EFFICIENT GROWTH & VALUE CREATION IN F16
Organic volume growth +1.3%
Organic net sales growth +2.8%
Organic operating margin +19bps
Free cash flow + £134m to £2,097m Pre exceptional eps +1%
ROIC broadly flat -22bps
Total Shareholder Return +17.0%
24 KEY FOCUS AREAS FOR F17
Growth of scotch globally
Improving performance in US Spirits
India
25 DIAGEO HAS A CLEAR STRATEGY
Delivered through our six priorities
With clear goals defined by our performance ambition
Four measures of our progress • efficient growth • value creation • credibility & trust • motivated people
26 CREDIBILITY AND TRUST
Create a positive role for alcohol in society
Building thriving communities
Reducing our environmental impacts
27 EMPLOYEE ENGAGEMENT TRENDS SHOW CONSISTENT IMPROVEMENT
28 KEY FOCUS AREAS FOR F17
Growth of scotch globally
Improving performance in US Spirits
India
29 SCOTCH IS BACK IN GROWTH GLOBALLY
1.0% 0.4% 0.0% • Net sales trend improvement in most (1.0)% regions
(2.0)% • Reserve scotch net sales up 7% (3.0)% • Johnnie Walker up 1% and (4.0)% Buchanan’s up 10% (5.0)% (4.9) (6.0)% % Diageo F15 F16
30 JOHNNIE WALKER HAS FOUR PILLARS FOR GROWTH INSPIRING STORIES SCALE UP LIQUID ON LIPS
REFRAME SCOTCH IS UNDERPINNED BY “BLENDERS BATCH”
+ GROWING SCOTCH BY ACTIVATING OUR PRIMARY SCOTCH ASSETS
37 SCOTCH REPRESENTS A KEY GROWTH OPPORTUNITY IN THE UNITED STATES
Scotch meets current consumer trends
Diageo has the leading scotch portfolio
In a premiumising category Diageo will lead the growth
38 IMPROVING PERFORMANCE IN US SPIRITS
New leadership team
Stronger distributor alignment with stepped up commercial execution
Transformed marketing function and strategic brand building approach
39 WE HAVE IMPLEMENTED INTERVENTIONS TO DELIVER IMPROVED GROWTH FOR SMIRNOFF
Marketing campaign is working and we will increase investment in F17
Pricing interventions implemented with further adjustments in F17 plans
Innovation approach more targeted
40 41 US SPIRITS ACTIONS FOR F17
Optimal pricing across brands
Leverage the more focused marketing function to widen consumer reach
Holistic campaigns across digital and traditional media
Drive productivity
42 IN INDIA, RISING INCOME LEVELS AND CHANGING INDIA CONSUMER TRENDS HAVE RESHAPED THE LANDSCAPE There are 3 Indias Households 2015 2025 • Globally travelled Affluent 1% 2% • Seek luxury experiences
1% 9% • Brand conscious • Willing to pay price Middle for increased value • Premium or 19% 32% Prestige products
• Price conscious • Just entering consumption Aspiring 43% 36% cycle • Occasional consumers of prestige products 43 USL HAS THE PORTFOLIO TO TAKE ADVANTAGE OF THE PREMIUMISATION TREND
44 USL IS WELL POSITIONED TO GROW SHARE IN A GROWING MARKET
Strengthening core brands to win across each of the 3 Indias
Expanding route to consumer which is focussed on sell out
Driving out costs to fuel growth and expand margins
Transformed USL to be a positive force behind the industry corporate citizenship agenda
We have the right leadership and the right organisation, people and capabilities 45 OUR PERFORMANCE AMBITION WILL BE DELIVERED THROUGH
Keep premium core vibrant
Increase participation in mainstream spirits
Continue to win in reserve
Drive innovation at scale
Build advantaged routes to consumer
Embed productivity in our culture to drive out costs to invest in growth
46 DIAGEO BUILT RESERVE TO A SCALE BUSINESS IN 5 YEARS Net sales 15.2% of Diageo net sales CAGR 13.5% 1,592 1,450 8.5% of 1,312 Diageo net 1,195 sales 1,067
845
2011 2012 2013 2014 2015 2016 47 Financial years ended 30th June DIAGEO BUILT RESERVE TO A SCALE BUSINESS IN 5 YEARS Mass Luxury Core Luxury Prestige Price vs. premium equivalent 2 – 5x 5 – 20x 20 – 100x
Association with a Indulgence in the Money no object, luxury lifestyle finest materials rarity and What is it about? and experiences exclusivity
High Earning Not High net worth Top End High net Who is the consumer? Rich Yet individuals worth individual and Ultra High net worth individual
What do they drink?
48 GETTING TO SCALE WITH OUR MASS LUXURY PORTFOLIO PREMIUM ACCOUNTS
ON PREMISE
HIGH ENERGY BARS NIGHTCLUBS
OFF PREMISE
SPECIALITY STORES GROCERY STORES CASH AND CARRY
49 PARTICIPATING IN DISRUPTIVE OPPORTUNITIES AT THE CUTTING EDGE OF CONSUMER TRENDS
Expanding our participation in the 3rd Space opportunity
Exciting new consumer focus on technological innovations
Distill Ventures continues to provide opportunity and new thinking
50 CONSUMERS ARE BROADENING THEIR REPERTOIRE OF OCCASIONS
51 3RD SPACE
3rd Space Events in
52 LOOKING TO THE FUTURE, PERSONALISATION AND PARTNERSHIPS COMBINE WITH THE “RESERVE” APP
53 WE ARE PARTICIPATING IN OPPORTUNITIES TO INFLUENCE EMERGING CONSUMER TRENDS • Seedlip and Diageo recently announced Distill Ventures investment
• Seedlip is creating a powerful new category
• Successful start with listings in top restaurants and good rate of sale over Christmas in Selfridges
• Second variant recently launched
54 BUILD ADVANTAGED ROUTE TO CONSUMER
Increased outlet coverage. 2m more sales calls per annum globally
Consistent execution globally against 4 commercial standards
Driving net sales growth and share growth
55 ACHIEVING OUTLET EXECUTION STANDARDS LEADS TO FASTER SALES GROWTH Brazil Outlet performance (Regional Supermarkets) Sell out growth in value F16 vs F15 34%
+30ppt Modern Trade
4% Regional Supermarket
Regional Supermarkets Top Executed Regional Supermarket
Outlets with execution standards implemented significantly outperform average in the segment Regional Supermarket Cash and Carry Source: GFK, Mtrix (Genexis) STANDARDISED WAY OF WORKING DRIVES GROWTH
Route to consumer applies our marketing assets with greater rigour 57 EMBED PRODUCTIVITY IN OUR CULTURE TO DRIVE OUT COSTS TO INVEST IN GROWTH
£500m productivity 2/3 reinvested to accelerate growth 100bp operating margin improvement
Net Revenue Product Organisation Marketing Indirects Management supply effectiveness
• Pricing • Redefine key • Reduce • Simplify and • Procurement spend complexity standardise levers • Spend buckets effectiveness • Stricter • Automate • Demand • • Promotions Make POS specification • Leverage management investment • Improve shared more capacity services efficient utilisation • Marketing • End-to-end procurement optimisation
Improve returns Operating to reinvest margin 58 DELIVERING NET REVENUE MANAGEMENT CAPABILITY TO DRIVE EFFECTIVENESS AND GROWTH
Pricing
Trade investment
Promotions
59 WE ARE DELIVERING IMPROVED MARKETING EFFICIENCY
This year we delivered £81m marketing procurement savings
Move to a more global procurement approach
Initial focus areas will be Agencies and point of sale
Target for F17 will be continued marketing efficiencies to support marketing investment
Commitment to deliver “more” marketing overall from the same investment
60 WE ARE DELIVERING MORE EFFECTIVE MARKETING
Our strength has been to market our brands with passion and flair
The result : the world leading portfolio we enjoy today
Improved efficiency and effectiveness can release more fuel behind our marketing capability
Increased rigour and access to insight-generating data is the key
We are building a rigourous, fast paced marketing function underpinned by the flair that has built our brands to the leading position they enjoy today
61 62 INTEGRATING WORKING IN PRODUCT SUPPLY TO EXPAND GROSS MARGIN
In supply we are applying more rigour to product development
Collaboration between supply and marketing on new packs
Resulting in great design outcomes at lower cost
63 INTEGRATING WORKING ACROSS MARKETING AND SUPPLY DRIVES GROSS MARGIN IMPROVEMENT
In supply we are applying more rigour to product development
Collaboration between supply and marketing on new packs
Resulting in great design outcomes at lower cost
64 STANDARDISE AND SIMPLIFY THE ORGANISATION
Organisational effectiveness – we continue to build on the effectiveness of our centralised resources with increased and better use of shared services.
Every Diageo function/team focused on sustained efficiency improvements in activities, driving out non-value added and improving executional effectiveness
Markets will increase focus on commercial execution, operating with greater agility
And the costs to deliver these change programmes will be funded by productivity savings directed for reinvestment 65 ZBB PROCESS IDENTIFIES SAVINGS OPPORTUNITY BY COST LINE Category Benchmark Worst Best Travel % spend per Diageo employee Consulting % spend on revenues Facility management % spend on revenues Real Estate % spend per employee
Legal % spend of revenues 66 EU REFERENDUM DECISION
Favourable trade agreements are a priority
Working with trade bodies and government
Diageo is well placed
67 IN SUMMARY
Diageo has a clear strategy
F16 – a good set of results which delivered our goals for the year
We have momentum into F17
Reiterated our guidance for mid-single digit top line growth and delivery, by the end of fiscal 2019, 100bps of operating margin improvement
68 APPENDIX 1 LINKS TO VIDEOS
Please don’t miss the opportunity to watch the videos referred to in the presentation;
• Malta Guinness – route to consumer in Ghana https://youtu.be/dIsGgpu6bQY
• Johnnie Walker Keep Walking – Colombia https://youtu.be/MMz2wvMN3TA
69 APPENDIX 2 QUARTERLY ORGANIC NET SALES GROWTH RATES Q1 Q2 H1 Q3 Q4 H2 FY
North America (10.3) 4.6 (1.7) 10.5 6.7 8.3 2.9
Europe, Russia and Turkey 3.0 3.5 3.3 8.1 3.9 5.6 4.3
Africa 5.5 1.0 2.9 (2.7) 6.7 2.4 2.6
Latin America and Caribbean 15.9 5.0 9.0 11.9 (20.6) (9.3) 0.6
Asia Pacific (1.1) 5.0 2.4 1.7 0.0 0.7 1.6
Diageo (1.2) 4.0 1.8 6.0 2.2 3.8 2.8
70 APPENDIX 3: 1/2 FORWARD LOOKING STATEMENTS
Exchange rate movements Using current exchange rates (£1 = $1.31; £1 = €1.19), the exchange rate movement for the year ending 30 June 2017 is estimated to have a positive impact on net sales by approximately £1,100 million and operating profit by approximately £370 million and have an adverse impact of approximately £20 million on net interest.
Net finance charges Effective interest rate is expected to increase slightly to about 3.6% for the year ending 30 June 2017, reflecting the projected increase in US libor rates and lower use of commercial paper given the full year impact of receipt of the disposal proceeds.
Dividend The group aims to increase the dividend at each half-year and the decision as to the rate of dividend increase is made with reference to dividend cover as well as the current performance trends including top and bottom line together with cash generation. Diageo targets dividend cover (the ratio of basic earnings per share before exceptional items to dividend per share) with the range of 1.8-2.2 times. For the year ended 30 June 2015 dividend cover was 1.6 times. Beginning with interim dividend for the year ended 30 June 2016 we slowed growth to 5% consistent with our focus on stabilizing and rebuilding dividend cover. The recommended final dividend for the year ended 30 June 2016 is 36.6 pence, an increase of 5% consistent with our interim dividend. This brings the full year dividend to 59.2 pence per share and dividend cover to 1.5 times. We would expect to maintain dividend increases at roughly a mid-single digit rate until cover is back in range.
Taxation Effective tax rate is expected to be at 21% for the year ending 30 June 2017. 71 APPENDIX 3: 2/2 FORWARD LOOKING STATEMENTS
Organisational changes announced in January 2014 In FY14 we announced organisational changes to deliver £200 million in savings. In the year ended 30 June 2015 savings of £127 million were delivered and in the year ended 30 June 2016 £71 million of savings were achieved.
Productivity gains announced in July 2015 Savings of £500 million per year by year ending 30 June 2019 will fund investment in growth.
Capital expenditure Capital expenditure is expected to be approximately £600 million in the fiscal year ending 30 June 2017 and proceeds from disposal to be lower than fiscal 2016.
Net Debt We expect net debt to decline in fiscal 2017 from strong cash flow delivery and M&A activity continuing at a modest level.
Post Employment Payments In the year ended 30 June 2016 total cash contributions by the group to all post employment plans were £169 million. For the year ending 30 June 2017 total cash contributions by the group are estimated to be approximately £200 million.
Net sales and operating margin These results position us well to deliver improved performance in fiscal 2017. We are confident of achieving our objective of mid-single digit top line growth and in the three years ending fiscal 2019 delivering 100bps of organic operating margin improvement. 72 APPENDIX 4 RECONCILIATION OF CASH FLOW MOVEMENTS Statement of cash flows (£m)
F15 F16 Movement
Operating profit after exceptional items 2,797 2,841 44 Net increase in working capital 117 (53) (170) Depreciation, amortisation and impairment 440 473 33 Dividends received 183 173 (10) Post employment payments less amounts included in operating profit (70) (59) 11 Other Items (11) (15) (4) Net interest and tax (905) (812) 93 Net capex (586) (449) 137 Movement in loans and other investments (2) (2) 0 Free Cash Flow 1,963 2,097 134
Reconciliation to slide 19: Movement on operating profit as shown on slide 19 Movement on other operating and investing activities as shown on slides 19 Post employment payments less amounts included in Operating profit after exceptional items as above 44 as above 11 operating profit Depreciation, amortisation and impairment as above 33 Employment benefits included in operating profit 4 Other items as above (4) Movement in loans and other investments as above 0 Post employment charges in operating profit (4) Dividends received as above (10) Operating profit movement excluding non-cash items 69 Other 5
Operating profit before exchange Slide 19 152 Exchange Slide 19 (83)
Operating profit movement excluding non-cash items 69 73 Cautionary statement concerning forward-looking statements This document contains ‘forward-looking’ statements. These statements can be identified by the fact that they do not relate only to historical or current facts. In particular, forward-looking statements include all statements that express forecasts, expectations, plans, outlook, objectives and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of changes in interest or exchange rates, the availability or cost of financing to Diageo, anticipated cost savings or synergies, expected investments, the completion of Diageo's strategic transactions and restructuring programmes, anticipated tax rates, expected cash payments, outcomes of litigation, anticipated deficit reductions in relation to pension schemes and general economic conditions. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors that are outside Diageo's control. These factors include, but are not limited to: . economic, political, social or other developments in countries and markets in which Diageo operates, which may contribute to reduced demand for Diageo’s products, reduced consumer spending, negative impacts on Diageo’s customer, supplier and financial counterparties or the imposition of import, investment or currency restrictions; . the results of the decision in the United Kingdom’s referendum on 23 June 2016 to withdraw from the European Union, which may lead to a sustained period of economic and political uncertainty and complexity until the detailed terms of the United Kingdom’s exit from the European Union are finalised and as the United Kingdom negotiates and concludes any successor trading arrangements with other countries, and which may also negatively impact economic conditions in Europe more generally which could have an adverse impact on Diageo's business operations and financial performance; . changes in consumer preferences and tastes, including as a result of changes in demographic and social trends, public health regulations and travel, vacation or leisure activity patterns, or as a result of contamination, counterfeiting or other circumstances which could harm the integrity or sales of Diageo’s brands; . any litigation or other similar proceedings (including with tax, customs and other regulatory authorities), including that directed at the drinks and spirits industry generally or at Diageo in particular, or the impact of a product recall or product liability claim on Diageo’s profitability or reputation; . the effects of climate change and related regulations and other measures to address climate change, including any resulting impact on the cost and supply of water; . changes in the cost of production, including as a result of increases in the cost of commodities, labour and/or energy or as a result of inflation; . legal and regulatory developments, including changes in regulations regarding production, product liability, distribution, importation, labelling, packaging, consumption, advertising and data privacy; changes in tax law (including tax treaties), rates or requirements (including with respect to the impact of excise tax increases) or accounting standards; and changes in environmental laws, health regulations and the laws governing labour and pensions; . the consequences of any failure by Diageo to comply with anti-corruption and other laws and regulations or any failure of Diageo’s related internal policies and procedures to comply with applicable law; . ability to maintain Diageo’s brand image and corporate reputation or to adapt to a changing media environment, and exposure to adverse publicity, whether or not justified, and any resulting impacts on Diageo’s reputation and the likelihood that consumers choose products offered by Diageo’s competitors; . increased competitive product and pricing pressures, including as a result of actions by increasingly consolidated competitors, that could negatively impact Diageo’s market share, distribution network, costs or pricing; . the effects of Diageo’s business strategies, including in relation to expansion in emerging markets and growth of participation in international premium spirits markets, the effects of business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or costs savings; . Diageo’s ability to benefit from its strategy, including its ability to expand to new markets, to complete and benefit from existing or future business combinations or other transactions, to successfully implement cost saving and productivity initiatives or to forecast inventory levels; . contamination, counterfeiting or other events that could adversely affect the perception of Diageo’s brands; . increased costs or shortages of talent; . disruption to production facilities or business service centres or information systems (including cyber-attack), existing or future; . fluctuations in exchange rates and interest rates, which may impact the value of transactions and assets denominated in other currencies, increase the cost of financing or otherwise affect Diageo’s financial results; . movements in the value of the assets and liabilities related to Diageo’s pension funds; . renewal of supply, distribution, manufacturing or licence agreements (or related rights) and licences on favourable terms or at all when they expire; and . failure of Diageo to protect its intellectual property rights. All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above factors and by the ‘Risk factors’ section above. Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Diageo may make in any documents which it publishes and/or files with the US Securities and Exchange Commission (SEC). All readers, wherever located, should take note of these disclosures. This document includes names of Diageo's products, which constitute trademarks or trade names which Diageo owns, or which others own and license to Diageo for use. All rights reserved. © Diageo plc 2016. The information in this presentation does not constitute an offer to sell or an invitation to buy shares in Diageo plc or an invitation or inducement to engage in any other investment activities. This presentation includes information about Diageo’s target debt rating. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently of any other rating. Past performance cannot be relied upon as a guide to future performance. 74 The contents of the company’s website (www.diageo.com) should not be considered to form a part of or be incorporated into this presentation