213800L23DJLALFC4O95-2023-06-30-T01

STRATEGIC REPORT

The Directors present their strategic report for the year ended 30 June 2023.

Principal activities

Diageo Capital plc (the ”company”) is engaged in the provision of treasury risk and cash management

for Diageo plc and its subsidiary undertakings (the ”group”). Diageo Capital plc's principal activity is to

raise external funds, principally using the London and New York financial markets. The company

finances other companies of the group via intragroup loans and deposits. Foreign exchange translation

hedging, interest rate risk management and cash management are also performed by the company.

Business review

Development and performance of the business of the company during the financial year and position of

the company as at 30 June 2023.

The results of the company and the development of its business are influenced to a considerable extent

by group financing requirements. Further information on the risk management policies of the group is

included in the Annual Report 2023 of Diageo plc (see note 16 of the consolidated financial statements

of Diageo plc).

Net finance income was £84 million in the year ended 30 June 2023, which is a £89 million increase

from net finance charge of £5 million in the year ended 30 June 2022.

External borrowings increased by £407 million at year ended 30 June 2023 to £6,404 million from

£5,997 million at year ended 30 June 2022, which was mainly driven by the company issuing bonds in

the amount of £1,788 million and repaying bonds of £1,083 million during fiscal 23.

Financial and other key performance indicators

As the company forms part of the group’s treasury operations, the company’s performance is measured

at the group level.

The company receives management fee income from Diageo plc to reimburse the expenses incurred in

relation to treasury services provided to the group.

Principal and financial risks and uncertainties facing the company as at 30 June 2023

The principal risks identified by the group are disclosed on page 88 to 93 of the Diageo plc Annual

Report 2023. The most relevant of the group risks to this entity are the ones we have selected and

articulated below, together with specific considerations relating to the company’s operations and

environment. If any of these risks occur, the company’s business, financial condition and operational

results could suffer. As the company forms part of the group’s financial operations, the financial risk

management measures used by management to analyse the development, performance and position of

the company’s business are mainly similar to those facing the group as a whole and are managed by the

group’s treasury department.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

STRATEGIC REPORT (continued)

Business review (continued)

Principal and financial risks and uncertainties facing the company as at 30 June 2023 (continued)

In addition, given that the company performs treasury functions for the group, as set out in the detailed

description under note 10 ‘Financial instruments and risk management’, it is exposed to foreign

currency risk associated with certain foreign currency denominated bonds and interest rate risk arising

principally on changes in US dollar and sterling interest rates. The company uses derivative financial

instruments to hedge its exposures to fluctuations in interest and exchange rates. Cash flow hedges are

carried out to hedge the currency risk of highly probable future foreign currency cash flows, as well as

the cash flow risk from changes in interest rates. Fair value hedges are carried out to manage the

currency and/or interest rate risks to which the fair value of certain assets and liabilities are exposed.

Starting in fiscal 24, in line with reporting requirements the functional currency of Diageo plc changed

from sterling to US dollar. Diageo Capital has also changed its presentation currency to US dollar. For

further details please refer to Note 14 of the financial statements.

The Directors have assessed the potential risk of the increasing interest rates and resulting potential

increase in cost of borrowing on the operation and the financial statements of the company. Considering

the company forms part of the group’s financial operations and as such it will be reimbursed for any

potential increase in the charges of its financial instruments therefore the impact of this risk is

considered to be very limited.

Geopolitical and macroeconomic volatility

Geopolitical forces, primarily driven by the Russia / Ukraine conflict, coupled with macro-economic

stress, increase the likelihood of international and domestic tensions, disputes and conflict that might

impact the business. Macroeconomic conditions include inflationary pressures, unemployment and

global trade tensions. Financial volatility risk could arise from variability in financial markets, interest

rate fluctuations and currency instability. Failure to react quickly enough to changing economic and/or

political conditions, e.g. inflationary pressures, currency instability, global trade tensions, heightened

political protectionism, changes to customs duties and tariffs, and/or eroded consumer confidence, may

impact on the freedom to operate in a market and could adversely impact financial performance.

The group monitors key business drivers and performance, to prepare for rapid changes in the external

environment and there are an enhanced group-level strategic analysis and scenario planning to

strengthen market strategies and risk management.

The group has continued to improve long-term forecasting and planning capabilities, to better assess

and respond to long-term opportunities and risks. The group has introduced a new strategic planning

and performance function with a stronger governance model for financial and non-financial decision-

making, which will enable closer monitoring of external volatility/risk and multi-country investment

strategy with a central hedging and currency monitoring to manage volatility.

During the year ended 30 June 2023, the group introduced advanced analytics to scenario plan volume

ranges over a longer time period, allowing better mitigation against changes in the external landscape.

Scenario-planning has been embedded into Executive and Board meetings and integrated into the

strategic planning cycle. Inflation has remained high and has reduced more slowly than expected in

many countries. High levels of inflation are expected to continue in the short to medium term. Foreign

exchange volatility has increased across several markets. There are dedicated cross-functional steering

groups to manage acute issues including inflation and foreign exchange volatility.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

STRATEGIC REPORT (continued)

Business review (continued)

Cyber and IT resilience

Cyber-attacks are becoming more prevalent, and there is an increased dependency on third-party IT

services and solutions. As geopolitical tensions are growing, there is a rise in more sophisticated cyber

threats affecting all organisations, therefore the risk of a cyber-attack is heightened.

The group has strong enterprise-wide cyber risk management processes and policies and next

generation security technologies to tackle advanced attacks. There is an IT and Operations Technology

(“OT”) disaster recovery and business continuity testing across the key systems. The group continue to

enhance and deploy next generation security technologies to tackle advanced attacks and upgrade the

enterprise resource planning system and associated processes to ensure they remain resilient.

Climate Risk

Considering that the company forms part of the group’s treasury operations, the probability of climate

change related risks having a significant and direct impact on the activities and operation of the

company is remote. The Directors believe that the risk mitigation actions taken in relation to climate

risk by the group are appropriate measures in managing direct or indirect risks posed by climate

change. Including the risk to the company of being able to access financing at competitive rates where

borrowings could become sustainability linked. Based on the climate risk assessment performed by the

group, the risk attached to the recoverability of intercompany balances is considered to be remote.

Statement on Section 172 of the Companies Act 2006

Section 172 of the Companies Act 2006 requires the Directors to promote the success of the company

for the benefit of the members as a whole, having regard to the interests of stakeholders in their

decision-making. In making decisions, the Directors consider what is most likely to promote the

success of the company for its shareholders in the long term, as well as the interests of the group’s

stakeholders. The Directors understand the importance of taking into account the views of stakeholders

and the impact of the company’s activities on local communities, the environment, including climate

change, and the group’s reputation.

The Company is a member of the group of companies (the “Group”) whose ultimate holding company

is Diageo plc (“Diageo”). In accordance with the requirements of UK company law, Diageo has

included in its 2023 Annual Report and Accounts on page 9 a statement as to how the directors of

Diageo have had regard to the matters set out in Section 172 of the Companies Act 2006.

In order to ensure consistency in how the Group operates with regard to its wider stakeholders, the

Group has adopted an internal Code of Business Conduct alongside a comprehensive framework of

global policies and standards that are designed to ensure, amongst other things, that all companies

throughout the Group, including the Company, have regard to its wider stakeholders in a consistent

manner.

The Company has therefore had regard to the matters set out in Section 172 of the Act in a manner that

is consistent with the approach adopted by Diageo, while at the same time ensuring the directors of the

Company are fulfilling their duties.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

STRATEGIC REPORT (continued)

Business review (continued)

Main activities of the Board

The principal activities of the Board during the year include:

•Approval of a change in the company’s functional and reporting currency from sterling to US

dollar;

•Extension of existing credit facilities; and

•Approval of the financial statements for the year ended 30 June 2022.

On behalf of the Board

J M C Edmunds

Director

11 Lochside Place

Edinburgh

Scotland

EH12 9HA

25 October 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

DIRECTORS' REPORT

The Directors have pleasure in submitting their Directors’ report and audited financial statements for

the year ended 30 June 2023.

The Directors foresee no changes in the company's activities. The company is incorporated and

domiciled as a public company limited by shares in Scotland, United Kingdom. The registered address

is 11 Lochside Place, Edinburgh, Scotland, EH12 9HA.

Going concern

The company’s business activities, together with the factors likely to affect its future development and

position, are set out in the business review section of the strategic report on pages 2-5. The company is

expected to continue to generate profit for its own account and to remain in a positive net asset position

for the foreseeable future. The company is in net current liability position, however the company

participates in the group’s centralised treasury arrangements and the parent will provide financial

support for the foreseeable future. The Directors have no reason to believe that a material uncertainty

exists that may cast significant doubt about the ability of the company to continue as a going concern.

On the basis of their assessment, the company’s Directors have a reasonable expectation that the

company will be able to continue in operational existence for a period of at least 12 months from the

date the financial statements are approved and signed as the ultimate parent undertaking has agreed its

policy is to provide financial support for a period of at least 12 months from the date the financial

statements are approved and signed. Thus they continue to adopt the going concern basis of accounting

in preparing the annual financial statements.

In arriving at this conclusion, the Directors have also considered the potential impact that the principal

risks outlined on the Strategic report may have on the company and believe that any impact would be

minimal.

Financial performance

The result for the year ended 30 June 2023 is shown on page 15.

The profit for the year transferred to reserves was £89 million (2022 - £1 million loss) and the other

comprehensive income for the year is £45 million (2022 - £4 million loss).

No dividend was paid during the year (2022 - £nil) and there was no dividend proposed to be

distributed to the shareholders in regard to the financial year (2022 - £nil).

Net financial assets were £281 million at 30 June 2023 (2022 - £132 million). More details on financial

instruments and risk management can be found under note 10.

Directors

The Directors of the company who were in office during the year and up to the date of signing the

financial statements were:

M Pais

J M C Edmunds

K E Major

I Thrustle

C-L Jordan (appointed 26 September 2022)

Cs Hajos (resigned 26 September 2022)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

DIRECTORS' REPORT (continued)

Directors’ remuneration

None of the Directors received any remuneration during the year in respect of their services as directors

of the company (2022 - £nil). The Directors were paid by fellow group undertakings, and no cost was

recharged to the company.

Directors’ indemnity

The Articles of Association permit qualifying third-party indemnities for the directors as defined by

Section 234 of the Companies Act 2006. No such indemnity was in force during the last financial year,

nor is any currently in force.

Secretary

The secretary of the company who was in office during the year and up to the date of signing the

financial statements was:

J M C Edmunds

Internal control and risk management over financial reporting

The company operates under the financial reporting processes and controls of the group. Diageo plc’s

internal control and risk management systems including its financial reporting process, which include

those of the company, are discussed in the group's Annual Report 2023 on page 115 at

www.diageo.com, which does not form part of this report.

Independent auditors

Pursuant to Section 487 of the Companies Act 2006, the auditors, PricewaterhouseCoopers LLP, have

been reappointed and will continue in office as auditors of the company.

Disclosure of information to the independent auditors’

The Directors who held office at the date of approval of this Directors’ report confirm that, so far as

they are each aware, there is no relevant audit information of which the company’s auditors are

unaware; and each director has taken all the steps that they ought to have taken as a director to make

themselves aware of any relevant audit information and to establish that the company’s auditors are

aware of that information.

On behalf of the Board

J M C Edmunds

Director

11 Lochside Place

Edinburgh

Scotland

EH12 9HA

25 October 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

DIRECTORS' REPORT (continued)

Statement of directors’ responsibilities in respect of the financial statements

The directors are responsible for preparing the annual report and the financial statements in accordance

with applicable law and regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that

law the directors have prepared the financial statements in accordance with United Kingdom Generally

Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced

Disclosure Framework”, and applicable law).

Under company law, directors must not approve the financial statements unless they are satisfied that

they give a true and fair view of the state of affairs of the company and of the profit or loss of the

company for that period. In preparing the financial statements, the directors are required to:

•select suitable accounting policies and then apply them consistently;

•state whether applicable United Kingdom Accounting Standards, comprising FRS 101 have

been followed, subject to any material departures disclosed and explained in the financial

statements;

•make judgements and accounting estimates that are reasonable and prudent; and

•prepare the financial statements on the going concern basis unless it is inappropriate to presume

that the company will continue in business.

The directors are responsible for safeguarding the assets of the company and hence for taking

reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are also responsible for keeping adequate accounting records that are sufficient to show

and explain the company’s transactions and disclose with reasonable accuracy at any time the financial

position of the company and enable them to ensure that the financial statements comply with the

Companies Act 2006.

Directors’ confirmations

Each of the directors, whose names and functions are listed in the Directors' Report confirm that, to the

best of their knowledge:

•the company financial statements, which have been prepared in accordance with United

Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets,

liabilities, financial position and profit of the company; and

•the Strategic Report includes a fair review of the development and performance of the business

and the position of the company, together with a description of the principal risks and

uncertainties that it faces.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

Independent auditors’ report to the members of

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

INCOME STATEMENT


		Year ended	Year ended
		30 June 2023	30 June 2022
	Note	£ million	£ million

Other operating income	2	5	4
Finance income	4	528	450
Finance charges	4	(444)	(455)
Operating profit/(loss)		89	(1)

Profit/(loss) before taxation on ordinary activities		89	(1)
Tax on profit/(loss)	5	—	—

Profit/(loss) for financial year		89	(1)

The accompanying notes are an integral part of these financial statements.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

STATEMENT OF COMPREHENSIVE INCOME


		Year ended	Year ended
		30 June 2023	30 June 2022
	Note	£ million	£ million

Other comprehensive income/(loss) Items that may be recycled subsequently to the income statement
Effective portion of changes in fair value of cash flow hedges
-gains taken to other comprehensive income/(loss)	12	6	233
-recycled to income statement	12	54	(239)
Tax credit on effective portion of changes in fair value of cash flow hedge	12	(15)	2
Total other comprehensive income/(loss)		45	(4)

Profit/(Loss) for the year		89	(1)

Total comprehensive income/(loss) for the year		134	(5)

The accompanying notes are an integral part of these financial statements.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

BALANCE SHEET


		30 June 2023	30 June 2022
	Note	£ million	£ million
Non-current assets
Other receivables	7	7,071	8,137
Other financial assets	6	348	325
		7,419	8,462
Current assets
Trade and other receivables	7	18	92
Other financial assets	6	—	45
		18	137
Total assets		7,437	8,599

Current liabilities
Trade and other payables	11	(486)	(2,256)
Other financial liabilities	6	(2)	(2)
Borrowings and bank overdrafts	9	(593)	(1,113)
		(1,081)	(3,371)
Non-current liabilities
Borrowings	9	(5,811)	(4,884)
Other financial liabilities	6	(264)	(212)
Deferred tax liability	8	(30)	(15)
		(6,105)	(5,111)
Total liabilities		(7,186)	(8,482)

Net assets		251	117

Equity
Called up share capital	12	—	—
Share premium		250	250
Cash flow hedging reserves	12	92	47
Other reserves		70	70
Accumulated losses		(161)	(250)
Total equity		251	117

The accounting policies and accompanying notes on pages 18 to 41 are an integral part of these

financial statements.

These financial statements on pages 14 to 41 were approved by the Board of Directors on 25 October

2023 and were signed on its behalf by:

J M C Edmunds

Director

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

STATEMENT OF CHANGES IN EQUITY

ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY


				Subtotal
	Share	Hedging	Other	Other	Accumulated
	premium	reserve	reserves	reserves	losses	Total
	£ million	£ million	£ million	£ million	£ million	£ million

Balance at 30 June 2021	250	51	70	121	(249)	122
Other comprehensive loss for the year	—	(4)	—	(4)	—	(4)
Loss for the year	—	—	—	—	(1)	(1)

Balance at 30 June 2022	250	47	70	117	(250)	117
Other comprehensive income for the year	—	45	—	45	—	45
Profit for the year	—	—	—	—	89	89

Balance at 30 June 2023	250	92	70	162	(161)	251

The accompanying notes are an integral part of these financial statements.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

Basis of preparation

These financial statements are prepared in accordance with Financial Reporting Standard 101 Reduced

Disclosure Framework (FRS 101).

In preparing these financial statements, the company applies the recognition, measurement and

disclosure requirements of International Financial Reporting Standards as adopted by the UK (IFRS)

but makes amendments where necessary in order to comply with Companies Act 2006 and sets out

below where the FRS 101 disclosure exemptions have been taken.

These financial statements are prepared on a going concern basis under the historical cost convention,

except that certain financial instruments are stated at their fair value.

The company is a wholly owned subsidiary of Diageo plc and is included in the consolidated financial

statements of Diageo plc which are publicly available.

The company has taken advantage of the following exemptions from the requirements of IFRS in the

preparation of these financial statements, in accordance with FRS 101:

•A cash flow statement and related notes as per IAS 1 and IAS 7

•Disclosures in respect of transactions with wholly owned subsidiaries within the Diageo plc

group;

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

1. ACCOUNTING POLICIES (continued)

New accounting standards and interpretations

The following amendments to the accounting standards, issued by the IASB and endorsed by the UK,

were adopted by the company from 1 July 2022 with no impact on the company's results, financial

position or disclosures:

•Amendments to IFRS 3 Updating a Reference to the Conceptual Framework

•Amendments to IAS 16 Property, Plant and Equipment: Proceeds before Intended Use

•Amendments to IAS 37 Onerous Contracts - Cost of Fulfilling a Contract

•Amendments to Annual improvements 2018-2020 - IFRS 9 - Fees in the '10 per cent' Test,

IFRS 16 - Lease incentives, IAS 41 - Taxation in Fair Value Measurements

•Amendments to IAS 12 International Tax Reform – Pillar Two Model Rules

The following standard and amendments issued by the IASB have been endorsed by the UK and have

not been adopted by the company:

•IFRS 17 – Insurance contracts (effective from the year ending 30 June 2024) is ultimately

intended to replace IFRS 4. Based on a preliminary assessment, the company believes that the

adoption of IFRS 17 will not have a significant impact on its results or financial position.

•Amendments to IAS 12 - Income taxes (effective from the year ending 30 June 2024) requires

an entity to recognise deferred tax on initial recognition of particular transactions to the extent

that the transaction gives rise to equal amounts of deferred tax assets and liabilities. The

proposed amendments would apply to transactions such as leases and decommissioning

obligations for which an entity recognises both an asset and a liability. The company believes

that the adoption of these amendments will not have a significant impact on its results and

financial position.

There are a number of other amendments and clarifications to IFRSs, effective in future years, which

are not expected to significantly impact the company’s consolidated results or financial position.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

1. ACCOUNTING POLICIES (continued)

Functional and presentational currency

These financial statements are presented in sterling (£), which is the company’s functional currency.

All financial information presented in sterling has been rounded to the nearest million unless otherwise

stated.

Finance costs

Finance costs are recognised in the income statement based on the effective interest method.

Going concern

The financial statements have been prepared on a going concern basis as the ultimate parent

undertaking has agreed its policy is to provide financial support for a period of at least 12 months from

the date the financial statements are approved and signed.

Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the

financial year end exchange rates and these foreign exchange differences are recognised in the income

statement.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

1. ACCOUNTING POLICIES (continued)

Financial assets and liabilities

Financial assets and liabilities are initially recorded at fair value including, where permitted by IFRS 9,

any directly attributable transaction costs. For those financial assets that are not subsequently held at

fair value, the company calculates allowance losses by reviewing lifetime expected credit losses using

historic and forward-looking data on credit risk. The company classifies its financial assets and

liabilities into the following categories: financial assets and liabilities at amortised cost, financial assets

and liabilities at fair value through profit and loss and financial assets at fair value through other

comprehensive income. Under IFRS 9, classification and measurement of financial assets depend on

the company’s business model for managing the asset and the cash flow characteristics of the assets.

The business model and cash flow characteristics assessment is carried out on an instrument by

instrument basis. Financial assets measured at amortised cost recognise finance income using effective

interest method.

Trade and other receivables Amounts owed by other group companies are initially measured at fair

value and are subsequently reported at amortised cost. Non-interest bearing trade receivables are stated

at their nominal value as they are due on demand. Allowance for expected credit losses are made based

on the risk of non-payment taking into account ageing, previous experience, economic conditions and

forward-looking data. Such allowances are measured as either 12-months expected credit losses or

lifetime expected credit losses depending on changes in the credit quality of the counterparty.

Borrowings Borrowings are initially measured at fair value net of transaction costs and are

subsequently reported at amortised cost. Certain bonds are designated as being part of a fair value

hedge and/or a cash flow hedge relationship. In case of FV hedge relationships, the amortised cost is

adjusted for the fair value of the risk being hedged, with changes in value recognised in the income

statement. The fair value adjustment is calculated using a discounted cash flow technique based on

unadjusted market data.

Trade and other payables Amounts owed to other group companies are initially measured at fair value

and are subsequently reported at amortised cost.

Derivative financial instruments

Derivative financial instruments are carried at fair value using a discounted cash flow technique based

on market data applied consistently for similar type of instruments. Gains and losses on derivatives that

do not qualify for cash flow hedge accounting treatment are taken to the income statement as they arise.

The company designates and documents certain derivatives as hedging instruments against changes in

fair value of recognised assets and liabilities (fair value hedges) and the cash flow risk from a change in

exchange or interest rates (cash flow hedges). The effectiveness of such hedges is assessed at inception

and at least on a quarterly basis, using prospective testing. Methods used for testing effectiveness

include dollar offset, critical terms, regression analysis and hypothetical derivative method. Fair value

movements of foreign exchange derivatives are included other operating income line and fair value

movements of interest instruments and interest payments of interest instruments are included within

finance charges.

Fair value hedges are used to manage the currency and/or interest rate risks to which the fair value of

certain assets and liabilities are exposed. Changes in fair value of the derivatives are recognised in the

income statement, along with any changes in the relevant fair value of the underlying hedged asset or

liability.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

1. ACCOUNTING POLICIES (continued)

If such a hedge relationship is de-designated or no longer meets hedge accounting criteria, fair value

movements on the derivative continue to be taken to the income statement while any fair value

adjustments made to the underlying hedged item to that date are amortised through the income

statement over its remaining life using the effective interest rate method.

Cash flow hedges are used to hedge the foreign currency risk of highly probable future foreign

currency cash flows, as well as the cash flow risk from changes in exchange or interest rates. The

effective portion of the gain or loss on the hedges is recognised in the other comprehensive income,

while any ineffective part is recognised in the income statement. Amounts recorded in the other

comprehensive income are recycled to the income statement in the same period in which the underlying

foreign currency or interest exposure affects the income statement.

Derivative financial instruments are presented in the financial statements as ‘Intra-group derivative

assets/(liabilities)’as these transactions are entered into by Diageo Finance plc, a fellow group

undertaking, and subsequently passed to the company.

Taxation

Current tax is based on taxable profit for the year. Taxable profit is different from accounting profit due

to temporary differences between accounting and tax treatments, and due to items, that are never

taxable or tax deductible. Tax benefits are not recognised unless it is probable that the tax positions are

sustainable. Once considered to be probable, tax benefits are reviewed each year to assess whether a

provision should be taken against full recognition of the benefit on the basis of potential settlement

through negotiation and/or litigation. Tax provisions are included in current liabilities. Penalties and

interest on tax liabilities are included in profit before taxation.

Full provision for deferred tax is made for temporary differences between the carrying value of assets

and liabilities for financial reporting purposes and their value for tax purposes. The amount of deferred

tax reflects the expected recoverable amount and is based on the expected manner of realisation or

settlement of the carrying amount of assets and liabilities, using the basis of taxation enacted or

substantively enacted by the balance sheet date. Deferred tax assets are not recognised where it is more

likely than not that the asset will not be realised in the future.

Judgements in applying accounting policies and key sources of estimation uncertainty

The Directors make estimates and judgements concerning the future of the company. The resulting

accounting estimates will, by definition, seldom equate to actual results. The company's Directors are of

the opinion that there are no estimates and assumptions, nor significant judgements that have a

significant risk of casting material adjustment to the carrying value of the assets and liabilities for the

company within the next financial year due to the nature of the business other than those discussed

below.

The critical accounting policy, which the Directors consider is of greater complexity and particularly

subject to estimates, is set out in detail in the accounting policy for derivative financial instruments. A

critical accounting estimate, specific to the company, is the estimation of fair valuation of derivative

assets and liabilities (see detailed description under note 10. Financial instruments and risk management

(f) Fair value measurements).

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

2. OTHER OPERATING INCOME


	Year ended	Year ended
	30 June 2023	30 June 2022
	£ million	£ million
Intercompany management income	6	5
Foreign exchange loss on operations	(1)	(1)
	5	4

The auditors’ remuneration of £11,378 (2022 - £9,831) was paid on behalf of the company by a fellow

group undertaking. There were no fees payable to the auditors in respect of non-audit services (2022 -

£nil).

3. EMPLOYEES

The company did not employ any staff during either the current or prior year.

None of the Directors received any remuneration during the financial year in respect of their services as

directors of the company (2022 - £nil) as the directors are paid by fellow group undertakings and no

cost was recharged to the company.

4. FINANCE INCOME AND CHARGES


	Year ended	Year ended
	30 June 2023	30 June 2022
	£ million	£ million

Finance income from fellow group undertakings	466	194
Amortisation of fair value changes	2	—
Fair value gain on intra-group derivative financial instruments	4	19
Fair value adjustment on borrowings	56	237
Total finance income	528	450

Finance charge to fellow group undertakings	(141)	(29)
Finance charge on all other borrowings	(238)	(162)
Fair value loss on intra-group derivative financial instruments	(58)	(260)
Discount and fee amortisation	(7)	(4)
Total finance charges	(444)	(455)

Net finance income/(charges)	84	(5)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

5. TAXATION


	Year ended	Year ended
	30 June 2023	30 June 2022
	£ million	£ million
(a) Analysis of taxation for the year
Current tax	—	—
Deferred tax	—	—
Taxation on profit on ordinary activities	—	—

	Year ended	Year ended
	30 June 2023	30 June 2022
	£ million	£ million
(b) Tax included in other comprehensive income
Current tax	—	—
Deferred tax - current year	(15)	2
Deferred tax - rate change	—	—
Total tax credit included in other comprehensive income/ (loss)	(15)	2

	Year ended	Year ended
	30 June 2023	30 June 2022
	£ million	£ million
(c) Factors affecting total tax for the year
Profit/(Loss) before tax	89	(1)
Taxation on profit/(loss) at UK corporation tax rate of 20.50% (2022 - 19%)	(18)	—
Group relief received for nil consideration	18	—
Total tax charge for the year	—	—

At 30 June 2022 the corporation tax rate was 19% which had been effective since 1 April 2017. The

UK corporation tax rate increased from 19% to 25% on 1 April 2023 and so an average tax rate of

20.50% is applied for the year ended 30 June 2023.

Deferred taxes at 30 June 2023 have been measured using this increased tax rate and reflected in these

financial statements.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

6. OTHER FINANCIAL ASSETS AND LIABILITIES


	Assets	Assets due	Liabilities	Liabilities
	due after	within one	due within	due after one
	one year	year	one year	year
	£ million	£ million	£ million	£ million
30 June 2023
Intra-group derivative assets/(liabilities)
Designated in cash flow hedge	348	—	—	—
Designated in fair value hedge	—	—	(2)	(264)

Total derivative assets/(liabilities)	348	—	(2)	(264)

Diageo Finance plc, a fellow group undertaking, entered into external cross currency interest rate

swaps on behalf of Diageo Capital plc, market value of which amounted to net £348 million at the

balance sheet date (2022 - £367 million). The external deals are mirrored through Diageo plc to Diageo

Capital plc, the ultimate beneficiary.


	Assets	Assets due	Liabilities	Liabilities
	due after	within one	due within	due after one
	one year	year	one year	year
	£ million	£ million	£ million	£ million
30 June 2022
Intra-group derivative assets/(liabilities)
Designated in cash flow hedge	324	43	—	—
Designated in fair value hedge	1	—	—	(212)
Not designated in a hedge relationship	—	2	(2)	—

Total derivative assets/(liabilities)	325	45	(2)	(212)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

7. TRADE AND OTHER RECEIVABLES


	30 June 2023		30 June 2022
	Due within one	Due after one	Due within one	Due after one
	year	year	year	year
	£ million	£ million	£ million	£ million
Amounts owed by fellow group
undertakings	17	7,071	91	8,137
Prepayments	1	—	1	—
	18	7,071	92	8,137

Amounts owed by fellow group undertakings include accrued and capitalised interest on the underlying

balances at 30 June 2023 and at 30 June 2022. These balances bear interest at fixed and variable rates

from 0.2659% to 8.11% for the year ended 30 June 2023 (2022 - from 0.0465 % to 8.11%).

Amounts owed by fellow group undertakings represent transactions with companies in the group with

which the company has a long-term financing relationship. These financing relationships are expected

to continue for the foreseeable future. Certain amounts owed by fellow group undertakings are

repayable on demand, but reclassified to non-current assets as they are not expected to be repaid in the

foreseeable future. Amounts owed by group undertakings are considered to have a fair value which is

not materially different to the book value. Expected credit loss is immaterial for amounts owed by

fellow group undertakings.

8.DEFERRED TAX LIABILITY


	Fair value and hedging reserves	Total
	£ million	£ million
At 30 June 2021	17	17
Recognised in other comprehensive income/(loss)	(2)	(2)
At 30 June 2022	15	15
Recognised in other comprehensive income/(loss)	15	15
At 30 June 2023	30	30

The deferred tax liability arose from temporary timing differences on cross currency swaps designated

as a cash flow hedge relationship. The amount of deferred tax liability on temporary differences is

£30 million (2022 - £15 million).

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

9. BORROWINGS AND BANK OVERDRAFTS


	30 June 2023	30 June 2022
	£ million	£ million
Commercial paper	198	—
US$ 1,350 million 2.625% bonds due 2023	—	1,115
US$ 500 million 3.500% bonds due 2023	397	—
Fair value adjustment to borrowings	(2)	(2)
	(593)	(1,113)
Borrowings due within one year and bank overdrafts	593	1,113

US$ 500 million 3.500% bonds due 2023	—	413
US$ 600 million 2.125% bonds due 2024	475	495
US$ 750 million 1.375% bonds due 2025	594	618
US$ 500 million 3.875% bonds due 2028	395	411
US$ 1,000 million 2.375% bonds due 2029	787	819
US$ 1,000 million 2.000% bonds due 2030	789	821
US$ 750 million 2.125% bonds due 2032	590	614
US$ 600 million 5.875% bonds due 2036	472	491
US$ 500 million 3.875% bonds due 2043	391	407
US$ 750 million 5.30% bonds due 2027	593	—
US$ 500 million 5.20% bonds due 2025	396	—
US$ 750 million 5.50% bonds due 2033	590	—
Fair value adjustment to borrowings	(261)	(205)
	(5,811)	(4,884)
Borrowings due after one year	5,811	4,884
	(6,404)	(5,997)
Total external borrowings	6,404	5,997

The interest rates of external borrowings shown in the table above are those contracted on the

underlying borrowings before taking into account any interest rate hedges. Bonds are stated net of

unamortised finance costs of £38 million (2022 - £36 million). Bonds are reported at amortised cost

with a fair value adjustment shown separately. These fair value adjustments are determined using

discounted cash flow method based on observable market input (Level 2). All bonds, medium-term

notes and commercial paper issued by the company are fully and unconditionally guaranteed by Diageo

plc.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The company’s funding, liquidity and exposure to foreign currency and interest rate risks are managed

at group level by the group’s treasury department.

The treasury department uses a range of financial instruments to manage these underlying risks.

Treasury operations are conducted within a framework of Board-approved policies and guidelines,

which are recommended and monitored by the finance committee, chaired by the Chief Financial

Officer. The policies and guidelines include benchmark exposure and/or hedge cover levels for key

areas of treasury risk, which are periodically reviewed by the Board following, for example, significant

business, strategic or accounting changes. The framework provides for limited defined levels of

flexibility in execution to allow for the optimal application of the Board-approved strategies.

Transactions arising from the application of this flexibility are carried at fair value, gains or losses are

taken to the income statement as they arise and are separately monitored on a daily basis using Value at

Risk analysis. In the years ended 30 June 2023 and 30 June 2022, gains and losses on these transactions

were not material. The company does not use derivatives for speculative purposes. All transactions in

derivative financial instruments are initially undertaken to manage the risks arising from underlying

business activities.

The finance committee receives monthly reports on the key activities of the treasury department,

including any exposures different from the defined benchmarks.

(a) Currency risk

The company presents its financial statements in sterling (which is the functional currency of the entity)

and conducts business in several currencies. As a result, it is subject to foreign currency risk due to

exchange rate movements, which will affect the company’s transactions. To manage the currency risk,

the company uses certain financial instruments. Where hedge accounting is applied, hedges are

documented and tested for effectiveness on an ongoing basis. The company expects hedges entered into

to continue to be effective and therefore does not expect the impact of ineffectiveness on the income

statement to be material.

Hedge of foreign currency debt

The company uses cross currency interest rate swaps to hedge the foreign currency risk associated with

certain foreign currency denominated borrowings.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(b) Interest rate risk

The group has an exposure to interest rate risk, arising principally on changes in US dollar, euro and

sterling interest rates. To manage interest rate risk, the group manages its proportion of fixed to floating

rate borrowings within limits approved by the Board, primarily through issuing fixed and floating rate

borrowings, and by utilising interest rate swaps. These practices aim to minimise the group’s net

finance charges with acceptable year-on-year volatility. To facilitate operational efficiency and

effective hedge accounting, for the year ended 30 June 2023, the group’s policy was to maintain fixed

rate borrowings within a band of 40% to 90%. For these calculations, net borrowings exclude interest

rate related fair value adjustments. The majority of the group’s existing interest rate derivatives are

designated as hedges and are expected to be effective. Fair value of these derivatives is recognised in

the income statement, along with any changes in the relevant fair value of the underlying hedged asset

or liability. The potential risk of the increasing interest rates and resulting potential increase in cost of

borrowing is considered to be limited as the company forms part of the group’s financial operations and

as such it will be reimbursed for any potential increase in the charges of its financial instruments.

IBOR reform

In accordance with the UK Financial Conduct Authority’s announcement on 5 March 2021, LIBOR

benchmark rates were discontinued after 31 December 2021, except for the majority of the US dollar

settings which are discontinued from 30 June 2023. There have been amendments to the contractual

terms of IBOR-referenced interest rates and the corresponding update of the hedge designations. By 30

June 2022, changes required to systems and processes in relation to the fair valuation of financial

instruments were implemented and the transition had no material tax or accounting implications. The

company also evaluated the implications of the reference rate changes in relation to other valuation

models and credit risk, and concluded that they were not material.

In line with the relief provided by the amendment, the group assumes that the interest rate benchmark

on which the cash flows of the hedged item, the hedging instrument or the hedged risk are based are not

altered by the IBOR reform. The derivative hedging instruments provide a close approximation to the

extent and nature of the risk exposure the group manages through hedging relationships.

Included in floating rate net borrowings are interest rate swaps designated in fair value hedges, with a

notional amount of £2,063 million (2022 – £2,355 million) whose interest rates are based on USD

LIBOR. In preparation for the discontinuation of USD LIBOR, the company have amended these

agreements to reference the Secured Overnight Financing Rate (SOFR) resulting in economically

equivalent trades upon transition. The floating legs of the transitioned trades will become SOFR based

subsequent to the last USD LIBOR based interest payments.

The company uses a sensitivity analysis that estimates the impacts on the income statement and other

comprehensive income of either an instantaneous increase or decrease of 0.5% in market interest rates

or a 10% strengthening or weakening in sterling against all other currencies, from the rates applicable at

30 June 2023 and 30 June 2022, for each class of financial instruments with all other variables

remaining constant. The sensitivity analysis excludes the impact of market risks on the corporate tax

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

payable. This analysis is for illustrative purposes only, as in practice interest and foreign exchange rates

rarely change in isolation.

The sensitivity analysis estimates the impact of changes in interest and foreign exchange rates. All

hedges are expected to be highly effective for this analysis and it considers the impact of all financial

instruments, including financial derivatives, cash and cash equivalents, borrowings and other financial

assets and liabilities. The results of the sensitivity analysis should not be considered as projections of

likely future events, gains or losses as actual results in the future may differ materially due to

developments in the global financial markets which may cause fluctuations in interest and exchange

rates to vary from the hypothetical amounts disclosed in the table below.


	0.5%	0.5%	10%	10%
	decrease in	increase in	weakening of	strengthening of
	interest rates	interest rates	sterling	sterling
	£ million	£ million	£ million	£ million
30 June 2023

Impact on income statement -
gain/(loss)	54	(54)	6	(5)
Impact on other comprehensive
income - gain/(loss)	20	(19)	39	(32)

30 June 2022

Impact on income statement -
gain/(loss)	44	(44)	2	(2)
Impact on other comprehensive
income - gain/(loss)	18	(17)	41	(33)

Impact on the statement of comprehensive income includes the impact on the income statement.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(d) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in

financial loss to the company. Credit risk arises on cash balances (including bank deposits and cash and

cash equivalents), derivative financial instruments, trade and other receivables, loans, financial

guarantees and committed transactions. The carrying amount of financial assets represents the

company’s exposure to credit risk at the balance sheet date as disclosed in section (h), excluding the

impact of any collateral held or other credit enhancements. A financial asset is in default when the

counterparty fails to pay its contractual obligations. Financial assets are written-off when there is no

reasonable expectation of recovery. The gross carrying amount of the financial asset has to be reduced

(written-off) in case there is no reasonable expectation of recovering the contractual cash flows on the

asset in its entirety or its portion only. Expected recovery of contractual cash flows is assessed

individually, on instrumental basis. Credit risk is managed separately for financial and business related

credit exposures.

Financial credit risk

The company aims to minimise its financial credit risk through the application of risk management

policies approved and monitored by the Board. Counterparties are limited to major banks and financial

institutions, primarily with a long-term credit rating within the A band or better, and the policy restricts

the exposure to any one counterparty by setting credit limits taking into account the credit quality of the

counterparty. The group’s policy is designed to ensure that individual counterparty limits are adhered to

and that there are no significant concentrations of credit risk. The Board also defines the types of

financial instruments which may be transacted. The credit risk arising through the use of financial

instruments for currency and interest rate risk management is estimated with reference to the fair value

of contracts with a positive value, rather than the notional amount of the instruments themselves. The

group annually reviews the credit limits applied and regularly monitors the counterparties’ credit

quality reflecting market credit conditions.

Business related credit risk

Since trade and other receivables principally include balances with fellow group undertakings, the risk

of non-performance is considered remote. Under IFRS 9, the significant increase in credit risk of

financing relationships with fellow group undertakings is determined based on the group’s internal

credit rating assessment. The assessment practice takes into account as inputs the historical default of

the financial instruments, currently available information about fellow group undertakings’ financial

performance and forward-looking information. The total balance of trade and other receivables is

qualified as performing in accordance with internal credit rating assessment. As a result of low risk

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

credit risk these financial assets have a very low risk of default (probability of default (PD)) and the 12-

months expected credit loss is considered to be immaterial.

(e) Liquidity risk

Liquidity risk is the risk that the company may encounter difficulties in meeting its obligations

associated with financial liabilities that are settled by delivering cash or other financial assets. The

company uses short term commercial paper to finance its day-to-day operations. The group’s policy

with regard to the expected maturity profile of borrowings is to limit the amount of such borrowings

maturing within 12 months to 50% of gross borrowings less money market demand deposits, and the

level of commercial paper to 30% of gross borrowings less money market demand deposits. In addition,

the group’s policy is to maintain backstop facilities with relationship banks to support commercial

paper obligations. The following tables provide an analysis of the anticipated contractual cash flows

including interest payable for the company financial liabilities and derivative instruments on an

undiscounted basis. Where interest payments are on a floating rate basis, rates of each cash flow until

maturity of the instruments are calculated based on the forward yield curve prevailing at 30 June 2023

and 30 June 2022. The gross cash flows of cross currency swaps are presented for the purposes of this

table. All other derivative contracts are presented on a net basis.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

Contractual cash flows


						Carrying
		Due	Due			amount
	Due	between	between	Due		at balance
	within 1	1 and 3	3 and 5	after 5		sheet
	year	years	years	years	Total	date^
	£ million	£ million	£ million	£ million	£ million	£ million
2023
Borrowings	(595)	(1,468)	(992)	(3,651)	(6,706)	(6,404)
Interest on borrowings	(216)	(389)	(325)	(743)	(1,673)	(59)
Trade and other financial
liabilities	(427)	—	—	—	(427)	(427)
Non-derivative financial
liabilities	(1,238)	(1,857)	(1,317)	(4,394)	(8,806)	(6,890)

Cross currency swaps (gross)
- Receivable	43	87	87	1,341	1,558	—
- Payable	(28)	(56)	(56)	(930)	(1,070)	—
Other derivative instruments (net)	(95)	(101)	(55)	(48)	(299)	—

Derivative instruments	(80)	(70)	(24)	363	189	82

2022
Borrowings	(1,116)	(909)	(620)	(3,595)	(6,240)	(5,997)
Interest on borrowings	(173)	(261)	(225)	(714)	(1,373)	(34)
Trade and other financial
liabilities	(2,222)	—	—	—	(2,222)	(2,222)
Non-derivative financial
liabilities	(3,511)	(1,170)	(845)	(4,309)	(9,835)	(8,253)

Cross currency swaps (gross)
- Receivable	851	90	90	1,442	2,473	—
- Payable	(783)	(56)	(56)	(958)	(1,853)	—
Other derivative instruments (net)	51	36	(1)	(20)	66	—

Derivative instruments	119	70	33	464	686	156

^ Difference between total contractual cash flow amount and carrying amount at balance sheet date is due to the

unamortized discount and fee balances and fair value adjustments of bonds in fair value hedge relationships.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

On 30 June 2023 the group had available undrawn committed bank facilities of £2,678 million (2022 -

£2,789 million).

The facilities can be used for general corporate purposes and, together with cash and cash equivalents,

support the group’s commercial paper programmes. There are no financial covenants on either of the

group’s or the company's material short- and long-term borrowings. Certain of these borrowings

contain cross default provisions and negative pledges. The committed bank facilities are subject to a

single financial covenant, being minimum interest cover ratio of two times (defined as the ratio of

operating profit before exceptional items, aggregated with share of after tax results of associates and

joint ventures, to net interest). They are also subject to pari passu ranking and negative pledge

covenants. Any non-compliance with covenants underlying group’s financing arrangements could, if

not waived, constitute an event of default with respect to any such arrangements, and any non-

compliance with covenants may, in particular circumstances, lead to an acceleration of maturity on

certain borrowings and the inability to access committed facilities. Both the group and the company

were in full compliance with its financial, pari passu ranking and negative pledge covenants in respect

of its material short- and long-term borrowings throughout each of the years presented.

(f) Fair value measurements

Fair value measurements of financial instruments are presented through the use of a three-level fair

value hierarchy that prioritises the valuation techniques used in fair value calculations.

The group and the company maintains policies and procedures to value instruments using the most

relevant data available. If multiple inputs that fall into different levels of the hierarchy are used in the

valuation of an instrument, the instrument is categorised on the basis of the most subjective input.

Foreign currency forwards and swaps, cross currency swaps and interest rate swaps are valued using

discounted cash flow techniques. These techniques incorporate inputs at levels 1 and 2, such as foreign

exchange rates and interest rates. These market inputs are used in the discounted cash flow calculation

incorporating the instrument’s term, notional amount and discount rate, and taking credit risk into

account. As significant inputs to the valuation are observable in active markets, these instruments are

categorised as level 2 in the hierarchy. There were no significant changes in the measurement and

valuation techniques, or significant transfers between the levels of the financial assets and liabilities in

the year ended 30 June 2023.

The company’s financial assets and liabilities measured at fair value are categorised as follows:


	30 June 2023	30 June 2022
	£ million	£ million
Derivative assets	348	370
Derivative liabilities	(266)	(214)

Valuation techniques based on observable market input	82	156
(Level 2)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(g) Results of hedge relationships

The company targets a one-to-one hedge ratio. Strengths of the economic relationship between the

hedged item and the hedging instrument is analysed on an ongoing basis. Ineffectiveness can arise from

subsequent change in the forecast transactions as a result of timing, cash flows or value except when the

critical terms of the hedging instrument and hedged item are closely aligned. The change in the credit

risk of the hedging instruments or the hedged items is not expected to be the primary factor in the

economic relationship.

The notional amounts, contractual maturities and rates of the hedging instruments designated in

hedging relationship as of 30 June 2023 and 30 June 2022 by the main risk categories are as follows:


	Notional		Range of
	amounts	Maturity	hedged
	£ million		rates
2023

Cash flow hedges
Derivatives in cash flow hedge	873	September 2036 - April 2043	US dollar 1.6 - 1.88
(foreign currency debt)

Fair value hedges
Derivatives in fair value hedge	2,460	September 2023 - April 2030	1.375 - 3.093%
(interest rate risk)

2022

Cash flow hedges
Derivatives in cash flow hedge	1,694	April 2023 - April 2043	US dollar 1.22 - 1.88
(foreign currency debt)

Fair value hedges
Derivatives in fair value hedge	2,769	April 2023 - April 2030	1.375 - 3.093%
(interest rate risk)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

With respect to hedges of the cash flow risk from a change in forward foreign exchange rates using

cross currency interest rate swaps, the retranslation of the related bond principal to closing foreign

exchange rates and recognition of interest on the related bonds will affect the income statement in each

year until the related bonds mature in 2036 and 2043. Foreign exchange retranslation and the interest on

the hedged bonds in the income statement are expected to offset those on the cross currency swaps in

each of the years.

In respect of cash flow hedging instruments, a gain of £6 million (2022 - £233 million) has been

recognised in other comprehensive income due to changes in fair value driven by movements in foreign

exchange and interest rates. A loss of £54 million has been transferred out of comprehensive income to

total finance charges (2022 - a gain of £239 million).


	At the
	beginning	Income	Comprehensive	Cash	At the end
	of the year	statement	income	movement s	of the year
	£ million	£ million	£ million	£ million	£ million
2023

Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	367	(54)	60	(25)	348

Fair value hedges
Derivatives in fair value hedge (interest rate risk)	(212)	(54)	—	—	(266)
Fair value hedge hedged item	207	56	—	—	263
Instruments in fair value hedge relationship	(5)	2	—	—	(3)

2022

Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	154	239	(6)	(20)	367

Fair value hedges
Derivatives in fair value hedge (interest rate risk)	29	(241)	—	—	(212)
Fair value hedge hedged item	(30)	237	—	—	207
Instruments in fair value hedge relationship	(1)	(4)	—	—	(5)

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(h) Reconciliation of financial instruments

The table below sets out the company’s accounting classification of each class of financial assets and

liabilities.


	Fair		Not
	value	Assets and	categorised
	through	liabilities at	as a
	income	amortised	financial			Non-
	statement	cost	instrument	Total	Current	current
	£ million	£ million	£ million	£ million	£ million	£ million
2023
Trade and other	—	7,088	1	7,089	18	7,071
receivables
Intra-group derivatives	348	—	—	348	—	348
in cash flow hedge

Total financial assets	348	7,088	1	7,437	18	7,419

Borrowings	—	(6,404)	—	(6,404)	(593)	(5,811)
Trade and other	—	(486)	—	(486)	(486)	—
payables
Intra-group derivatives	(266)	—	—	(266)	(2)	(264)
in fair value hedge

Total financial
liabilities	(266)	(6,890)	—	(7,156)	(1,081)	(6,075)

Total net financial
assets/(liabilities)	82	198	1	281	(1,063)	1,344

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(h) Reconciliation of financial instruments (continued)


	Fair		Not
	value	Assets and	categorised
	through	liabilities at	as a
	income	amortised	financial			Non-
	statement	cost	instrument	Total	Current	current
	£ million	£ million	£ million	£ million	£ million	£ million
2022
Trade and other	—	8,228	1	8,229	92	8,137
receivables
Intra-group derivatives	367	—	—	367	43	324
in cash flow hedge
Intra-group derivatives	1	—	—	1	—	1
in fair value hedge
Intra-group derivatives	2	—	—	2	2	—
not designated in a
hedge relationship

Total financial assets	370	8,228	1	8,599	137	8,462

Borrowings	—	(5,997)	—	(5,997)	(1,113)	(4,884)
Trade and other	—	(2,256)	—	(2,256)	(2,256)	—
payables
Intra-group derivatives	(212)	—	—	(212)	—	(212)
in fair value hedge
Intra-group derivatives	(2)	—	—	(2)	(2)	—
not designated in a
hedge relationship

Total financial
liabilities	(214)	(8,253)	—	(8,467)	(3,371)	(5,096)

Total net financial
assets/(liabilities)	156	(25)	1	132	(3,234)	3,366

At 30 June 2023 and 30 June 2022, the carrying values of cash and cash equivalents, other financial

assets and liabilities approximate to fair values. At 30 June 2023, the fair value of borrowings, based on

unadjusted quoted market data (Level 1 sources as categorised by IFRS 13), was £6,297 million (2022 -

£5,880 million).

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(i) Capital management

The group’s management is committed to enhancing shareholder value in the long term, both by

investing in the businesses and brands so as to deliver continued improvement in the return from those

investments and by managing the capital structure. The group manages its capital structure to achieve

capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to

debt markets at attractive cost levels.

11. TRADE AND OTHER PAYABLES


	30 June 2023	30 June 2022
	£ million	£ million
Amounts owed to fellow group undertakings	427	2,222
Interest payable	59	34
	(486)
	486	2,256

Amounts owed to fellow group undertakings include accrued and capitalised interest on the underlying

balances at 30 June 2023 and at 30 June 2022. These balances are repayable on demand and bear

interest at fixed and variable rates from 0% to 4.2013% for the year ended 30 June 2023 (2022 - from

0.0465% to 3.8175%).

Amounts owed to fellow group undertakings represent transactions with companies in the group with

which the company has a long-term financing relationship. These financing relationships are expected

to continue for the foreseeable future. Amounts owed to group undertakings are considered to have a

fair value which is not materially different to the book value.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

12. CALLED UP SHARE CAPITAL AND RESERVES

(a) Share capital


	30 June 2023	30 June 2022
	£	£
Authorised allotted, called up and fully paid:
200,000 ordinary shares of £1 each	200,000	200,000

(b) Hedging reserve


		Hedging reserve
		£ million

At 30 June 2021		51
Effective portion of changes in fair value of cash flow hedges
- gains taken to other comprehensive income		233
- recycled to income statement		(239)
Tax credit on effective portion of changes in fair value of cash flow hedge		2

At 30 June 2022		47
Effective portion of changes in fair value of cash flow hedges
- gains taken to other comprehensive income		6
- recycled to income statement		54
Tax charge on effective portion of changes in fair value of cash flow hedge		(15)
		45
At 30 June 2023		92

13. IMMEDIATE AND ULTIMATE PARENT UNDERTAKING

The immediate and ultimate parent undertaking of the company is Diageo plc which is the ultimate

controlling party of the group. The ultimate parent undertaking and the smallest and largest group to

consolidate these financial statements is Diageo plc. Diageo plc is incorporated and registered in

England, United Kingdom. The consolidated financial statements of Diageo plc can be obtained from

the registered office at Diageo, 16 Great Marlborough Street, London, W1F 7HS, United Kingdom.

14. POST BALANCE SHEET EVENTS

Starting 1 July 2023, the direct parent of the company, Diageo plc is required to change its functional

currency from sterling to US dollar which is applied prospectively. Diageo plc has also decided to

change its presentation currency to US dollar with effect from 1 July 2023, applied retrospectively.

The company is a treasury entity of the Diageo group carrying out treasury activities as an extension of

the direct parent. In line with reporting requirements the company followed its direct parent and

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023

NOTES TO THE FINANCIAL STATEMENTS (continued)

14. POST BALANCE SHEET EVENTS (continued)

changed functional currency from sterling to US dollar starting 1 July 2023 which is applied

prospectively. The company also decided to change its presentation currency to US dollar with effect

from 1 July 2023, applied retrospectively.

As a result of the functional and presentational currency change of the company from 1st July 2023, the

Group Treasury and management has taken the following actions to manage the changed foreign

currency exposures of the company. Sterling denominated intercompany loan of the entity has been

converted from sterling to US dollar on transition date with no material fair value impact and no cash

settlement. The amount of denominated intercompany loan is £818,738 million, which has been

converted to $1,031,609 million. Internal cross currency interest rate swaps of $1,100 million held by

the entity, previously cash flow hedging the US dollar denominated borrowings, have been terminated

and the related hedges has been discontinued. External deals in Diageo Finance Plc are unchanged only

the internal deals have been terminated. These actions are effective from 1 July 2023. Risk management

policies have also been reviewed and amended to manage the risks post transition, but these changes

will not have any material impact in fiscal 24 and going forward aside from the changes described

above.

The company launched and priced a $1.7 billion SEC-registered bond offering, consisting of $800

million 5.375% fixed rate notes due 2026 and $900 million 5.625% fixed rate notes due 2033.

The company repaid $500 million 3.5% fixed rate bonds on 18 September 2023.

Diageo Capital plc

Registered number: SC040795

Year ended 30 June 2023


STRATEGIC REPORT	2
DIRECTORS' REPORT	6
STATEMENT OF DIRECTORS' RESPONSIBILITIES	8
INDEPENDENT AUDITORS' REPORT TO THE DIRECTORS OF DIAGEO CAPITAL PLC	9
INCOME STATEMENT	14
STATEMENT OF COMPREHENSIVE INCOME	15
BALANCE SHEET	16
STATEMENT OF CHANGES IN EQUITY	17
NOTES TO THE FINANCIAL STATEMENTS	18