An insight into Treasury management in a FTSE 100 company Marcel Miller Director of Treasury Middle Office Diageo plc Nov 2006 1

Agenda Diageo overview Treasury management @ Diageo Who we are Our brands Our global scope Diageo Strategy Treasury management @ Diageo Treasury KPIs Organisation Design Financial Policies Liquidity Profile Pension Risk Management I’d like to begin by giving you a brief overview of Diageo, our brands and our approach to risk management I would then like to explore in more detail some areas which relate specifically to treasury

Overview of Diageo The world’s leading premium drinks business Leading brands in the world’s major beverage alcohol categories Accounts for 55% of the volume of the world's top 10 premium spirits brands and manages 9 of the world’s top 20 brands1 Operates in over 180 markets with approximately 23,000 employees worldwide Generates strong and stable free cash flows (£1.4bn)2 Market capitalisation of £27.5bn3 (LSE / NYSE listed) Diageo is the world’s leading premium drinks business. Our brands and our global reach are the basis of Diageo’s position and they are the platform from which we will continue to deliver our objectives. You will no doubt be very familiar with our collection of premium drinks brands, which comprise the leading brands in the world’s major beverage alcohol categories We account for 55% of the volume of the world’s top 10 premium spirit brands We operate in over 180 markets around the world and employ approximately 23,000 people worldwide The group was formed in 1997 through the merger of Grand Metropolitan and Guinness and is now a truly global alcoholic beverages company, having disposed of our legacy food businesses. Diageo is listed both on the London and the New York stock exchanges with a market capitalisation of approximately £26bn 1 Source: Impact International (as at February 2006) 2 Year ended 30 June 2006. 3 Source: Bloomberg (as at 14 November 2006)

World’s leading premium drinks company Market Cap £26bn Net Sales £7.3bn EXCEL SOURCE copied at 19-Sep-2006 12:22:29 : SPICEGIRLS\Roadshow\01 World's Leading Premium Drinks Company.xls(Diageo) EXCEL SOURCE copied at 19-Sep-2006 02:12:13 : SPICEGIRLS\Roadshow\01 World's Leading Premium Drinks Company.xls(Diageo) Market Cap £10bn Net Sales £4.2bn Market Cap £5bn Net Sales £1.4bn Diageo is the world’s leading premium drinks company, by a significant margin, as measured by net sales and market capitalisation Diageo retains considerable scale when compared against its competitor group. Despite recent sector consolidation, we have over twice the market cap and almost 2 times the net sales of our closest competitor In consumer goods, our global scale is an important factor. The advantages of scale are demonstrated in three key areas: Sales and marketing efficiencies and deeper, broader consumer understanding Superior routes to market Production, manufacturing and operating synergies These are to the benefit of our investor base and our consumers Market Cap N/A Net Sales £2.1bn Source Net Sales (after deducting excise duties from premium drinks): Diageo (2006 Report & Accounts); Pernod Ricard (Press Release 21 September 2006); Bacardi (Company Report, March 2005); Brown Forman (2006 Report & Accounts) Source: Market Cap: Bloomberg, 22 September 2006 Note: For Net Sales average exchange rates over reporting period applied for conversion to Pounds Sterling

World’s leading brands Diageo’s top 9 global brands account for over 60% of net sales #1 Vodka #1 Scotch Whisky #1 Stout #1 Liqueur #2 Scotch Whisky #2 Rum Our leadership position in the industry is built on our leading brands in all major alcohol categories. Our 9 leading brands account for over 60% of net sales and hold the number 1 or 2 positions in their respective categories. These brands are complemented by local brands which are strong in their own markets. For example Gordon’s gin and Bell’s Scotch whisky in the UK, Bundaberg rum in Australia, Buchanans Scotch whisky in Latin America, Windsor Scotch whisky in Korea and Sterling Vineyards in North America. In addition, Diageo holds a 34% equity interest in Moët Hennessy Our broad collection of brands enables Diageo to benefit from the trends across different consumer groups in different markets around the world, providing stability to our underlying cash flows In addition our brands provide a strong foundation for premiumisation and innovation, for example Johnnie Walker Blue and Ciroc #1 Tequila #1 Import Gin in US #1 Canadian Whisky Source: Market share position from Impact International (as at February 2006); Note: Cuervo is an Agency brand

Geographically diversified revenue streams Europe North America Net sales £2.5bn Net sales £2.5bn Operating profit £0.7bn 6% Operating profit £0.8bn 6% Moving now to Diageo's global reach. It extends to some 180 markets around the world which we now manage through three similar sized regions. By moving to a geographic organisation, we have been able to implement our strategies more consistently. We have also been able to eliminate market duplication and improve our efficiency. We now have clear priorities when we are allocating resources between brands and markets. This has delivered a number of benefits in the last year. We have reallocated marketing spend from Europe to International which has given us the capacity to invest behind some of the fastest growing brands and markets in the world. In Europe we have been able to consolidate our strucutre to reduce overheads and distribution costs. We have moved many back office activities from North America to our shared services centre in Budapest. Our performance has demonstrate that in each region, focus on brand building marketing campaigns, better sales execution and innovation generates growth. Let’s look at each of these three growth drivers by region. International Net sales £2.2bn Operating profit £0.6bn 9% Year ended 30 June 2006. Net sales is after deducting excise duties. Operating profit before exceptional items. Organic growth before exceptional items.

Treasury Management I would like now to turn to the financial highlights which have arisen from the success of our strategy. 7

Delivering superlative performance means managing our risks F07 Treasury Performance Promise Delivering superlative performance means managing our risks Q4 Q1 Q3 Q2 Status Q4 Q1 Q3 Q2 Status KPI Scorecard Developing our people Delivering Treasury Operating Model Sustaining an effective control environment, including SOX compliance Sustaining IFRS / US GAAP capability 5 Sustaining compliance with Treasury policies 6 Managing interest P&L charge and cash flow 7 Managing transaction FX volatility 8 Sustaining processing and reporting effectiveness and efficiency 9 Managing debt issuance and liquidity at world class cost 10 Managing the credit rating and capital structure 11 Delivering effective Capital management 12 Providing support to our Business Partners 13 Driving efficient delivery of risk financing strategy Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2

Business Insurance & Risk Financing New Treasury organisational design ` London (& Dublin) Budapest Group Treasurer Deirdre Mahlan (from April 07) Director of FP&R & Treasury Lisa Nichols Treasury Leadership Team All aspects of policy creation, including FX Capital structure Bank & Credit Ratings Agency relationships Finance Committee/ASC paper preparation Share buy-back & option hedging Long-term debt Director, Capital Mkts & Corporate Finance Jonathan Slade Relationship & co-ordination across London, Budapest and Dublin Finance Comm/Board paper co-ordination Filing Assurance Committee Projects Pension risk management Global process owner, CPI CARM (London only) IFSC, Dublin Director, Middle Office Marcel Miller Management of Risk financing strategy Fin Comm/Board paper preparation and presentation Support to businesses and global functions External market negotiations Management of external partners/ suppliers & processes Director, Business Insurance & Risk Financing Adrian Donald Markets & Execution Interest/cash-flow forecasting FX transaction and b/sheet hedging Short-term debt/cash management MAC reports FX support for markets & projects Treasury Performance Director Gabor Wavrik Treasury accounting, control and reporting Monthly reporting & magnitude US GAAP CARM (Budapest only) Short-term cash flow forecasting Confirmations Settlements Payments Bank reconciliations Treasury Reporting & Control Director Zoltán Bodnár

Summary financial policy Policy of targeting a range of ratios which are currently broadly consistent with an A band credit rating Capital Structure Balances interests of various stakeholders including debt and equity holders Optimises the balance between Capital efficiency Financial flexibility Access to the debt markets at attractive cost levels Dividend per share growth held to around 5% annually to rebuild dividend cover Share buybacks are consistent with targeted financial ratios £1.4bn planned buybacks in 2007 will be in line with 2006 levels We will make selective acquisitions which meet our investment criteria Aim to cover Diageo’s WACC rate within a reasonable period Our key financial policies are reviewed and approved each year by the board. The board has approved a policy of targeting a single A rating and this is key to defining our financial polices and capital structure We seek to balance the interests of our various stakeholders, including our debt and equity holders and to optimise the balance between capital efficiency, financial flexibility and access to the debt markets at attractive cost levels. With regards to dividends, we expect to hold dividend per share growth to around 5% annually until dividend cover moves towards 2.0x and this is what we have done, starting with the F06 dividend Our share buyback programme is the mechanism by which we maintain our capital structure within stated financial ratios, returning excess capital to our shareholders. We expect our share buyback programme to amount to approximately £1.4bn in fiscal 07, a similar amount to fiscal 06 We will make acquisitions of brands in growth categories and markets that meet our investment criteria and are consistent with our strategy. We aim to cover our WACC within a reasonable time frame of 3 to 4 years. Recent examples of acquisitions include Ursus vodka for £90m and Chalone wines for £150m in February 2005, Bushmills Irish whiskey for £200m in August 2005 and the Smirnov vodka brand for £30m in July this year – these are what we term “bolt-on” acquisitions But we will walk away from acquisitions if our criteria are not met. For example, we did not exercise an option we had to acquire the Montana wine brand last year Our share buy-back programme and acquisition strategy are consistent with our board policies and our ratings target within the single A band

Liquidity profile Consistent operating cash flows since formation in 1997 Diversified funding sources US$ Shelf Debt Issuance programme Euro Debt Issuance programme US Commercial Paper programme US$3.2bn term committed credit facilities (undrawn) Single financial covenant : P&L Interest Cover1  2.0x Strong and supportive bank group Conservative debt management policy, including Maintaining a smooth maturity profile and Commercial paper to be less than 30% of net debt In addition to our own strong cash generation Diageo has excellent access to a broad range of funding sources under various programmes   We have a strong and supportive bank group, providing $3.2bn of committed facilities We have a conservative debt management policy incorporating a smooth maturity profile and no more than 30% of net debt funded in the commercial paper market 1 Operating Profit before exceptional items plus Share of Associates Profit / Net Interest charge

Goals of Diageo’s pension risk review Continue to provide pension benefits in a cost efficient manner Minimise negative impact of volatility which might endanger corporate financial strategy Avoid over funding the pension scheme Consider obligations arising from changes in the laws governing pensions Develop consistent approach to risk across UK and Irish schemes Work in partnership with Trustees

Developing a De-risking Roadmap Clear Goals Risks Analysis Solution Design Stakeholder Agreement Implementation

Risk Analysis The main risks facing the pension funds can be summarised as: Type of risk Liability risks (IAS19) VAR(1 year) Interest rate volatility £0.7bn Inflation Volatility £0.2bn Asset risks Equity volatility £0.8bn Foreign exchange risks £0.1bn Total £1.0bn (but correlation assumptions) Mortality risk ?? (£180m -1 year increase in life expectancy) Salary Growth ?? (but UK scheme closed, and mature profiles)

Risk Tolerance Diageo schemes employ a long-term “out-performance” strategy in order to benefit from the equity risk premium over the longer term. Risk management needs to balance the requirement for out performance with the potential risks it carries. Diageo’s pension liabilities are 20% of its market capitalisation which is towards the middle of the range for the FTSE 100. Financial and operational strength to cope with substantial volatility in short term. Risk budget established.

Solution Design Key elements: Reduce liabilities exposure to interest rate and inflation using real rate swaps Increase diversification within the asset portfolio Progressively switch from risk assets to bonds as solvency improves Consider further protection against unacceptable volatility

Cautionary statement concerning forward-looking statements This document contains certain forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the US Securities Exchange Act of 1934. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. 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. Diageo does not undertake to update forward-looking statements to reflect 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 documents it files with the US Securities and Exchange Commission.

#1 Liqueur #2 Rum #1 Stout #1 Canadian Whisky #1 Tequila #1 Import Brand in US #1 Scotch Whisky #2 Scotch Whisky