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

2. Agenda Diageo overview Treasury management @ Diageo Who we are
Our brands
Our global scope
Diageo Strategy
Treasury 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

3. 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)

4. World’s leading premium drinks company
Market Cap £26bn Net Sales £7.3bn
EXCEL SOURCE copied at 19-Sep :22:29 : SPICEGIRLS\Roadshow\01 World's Leading Premium Drinks Company.xls(Diageo)
EXCEL SOURCE copied at 19-Sep :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

5. 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

6. 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 Net sales is after deducting excise duties. Operating profit before exceptional items. Organic growth before exceptional items.

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

8. 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

9. 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

10. 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

11. 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

12. 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

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

14. 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)

15. 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.

16. 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

17. 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 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.

18. #1 Liqueur
#2 Rum
#1 Stout
#1 Canadian Whisky
#1 Tequila
#1 Import Brand in US
#1 Scotch Whisky
#2 Scotch Whisky