Diageo PLC — Annual Report 2012

Jun 30, 2012

Diageo Finance plc

Financial statements 30 June 2012

Registered number: 213393

Directors' report

The directors have pleasure in submitting their annual report, together with the audited financial statements for the year ended 30 June 2012.

Activities

During the financial year the company was engaged in treasury risk and cash management for Diageo plc and its subsidiary undertakings. The company's operations are based in the United Kingdom. It raises the external funds it requires principally using the London and New York financial markets.

The company forms part of the Diageo group's treasury operations, which manage the Diageo group's funding, liquidity, interest rate and foreign exchange risks. Further information on the risk management policies of the Diageo group is included in the annual report of Diageo plc (see Note 23 of the consolidated financial statements). The results of the company and the development of its business are, therefore, influenced to a considerable extent by group financing requirements. The directors foresee no changes in the company's activities.

Business review

Development and performance of the business of the company during the financial year and position of the company as at 30 June 2012

Diageo Finance plc operates as the bank of the group, finances operating companies via intra-group loans and deposits and makes third party payments on behalf of other group companies. Foreign exchange transactional hedging deals are carried out in the company to hedge brand owners' future foreign currency cash flows with 0.2% margin. Foreign exchange translation hedging, interest rate risk management and cash management is also performed by the company.

Financial and other key performance indicators

The performance of the company is based on its ability to hedge exposures to foreign currency and interest rate fluctuations for both the group and the company. The company generates income through interest on intra-group lending.

Principal risks and uncertainties facing the company as at 30 June 2012

The principal risks and uncertainties facing the company are foreign currency risk associated with certain foreign currency transactions and interest rate risk arising principally on changes in interest rates. The fair value movement on these financial instruments is recorded in the profit and loss account.

Directors' report (continued)

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 directors' report on page 1. The company generated negative cash flows during the financial year, which is expected to continue in the forthcoming financial year. From the financial year thereafter and subsequent financial years, however, the company is expected to generate positive cash flows on its own account. The directors have no reason to believe that a material uncertainty exists that may cast significant doubt about the ability of the Diageo group 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 the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

Financial

The results for the year ended 30 June 2012 are shown on page 6.

The directors do not recommend the payment of a dividend (2011 - £nil).

The loss for the year transferred from reserves is £342 million $(2011 - \text{profit of £293 million transferred to })$ reserves).

Directors

The directors who held office during the year were as follows:

S J Bolton	(resigned 2 February 2012)
J A I Franco	(resigned 2 February 2012)
G Geiszl
D Heginbottom
J J Nicholls
M Pais
A M Smith	(resigned 2 February 2012)
P D Tunnacliffe

Secretary

On 2 February 2012, J J Nicholls resigned as Secretary of the company and C E Kynaston was appointed in his place.

Directors' remuneration

None of the directors received any remuneration during the year in respect of their services as directors of the company $(2011 - \text{Enil})$ .

Directors' report (continued)

Auditor

The auditor, KPMG Audit Plc, is willing to continue in office and a resolution for its re-appointment as auditor of the company will be submitted to the Annual General Meeting.

Disclosure of information to auditor

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 auditor is 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 auditor is aware of that information.

By order of the board

Pai Marches

M Pais Director Lakeside Drive, Park Royal, London NW10 7HQ

24 October 2012

Statement of directors' responsibilities in respect of the directors' report and the financial statements

The directors are responsible for preparing the directors' report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the 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 these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently: $\bullet$
• make judgements and estimates that are reasonable and prudent: $\bullet$
• state whether applicable UK Accounting Standards have been followed, subject to any material $\bullet$ departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that $\bullet$ the company will continue in business.

The directors are 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 its financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Independent auditor's report to the members of Diageo Finance plc

We have audited the financial statements of Diageo Finance Plc for the year ended 30 June 2012 set out on pages 6 to 20. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 4, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the company's affairs as at 30 June 2012 and of its loss for the year then ended;
• have been properly prepared in accordance with UK Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• $\bullet$ adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• $\bullet$ the financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or $\bullet$
• e have not received all the information and explanations we require for our audit.

Lee Edwards Senior Statutory Auditor For and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL

Date: $24|10|12$

Profit and loss account

	Notes	Year ended 30 June 2012 $\pounds$ ' m	Year ended 30 June 2011 £ ' m
Interest income		913	850
Interest expense	$\overline{c}$	(1,250)	(563)
Net interest (expense)/income Other operating (expense)/income	3	(337) (2)	287 7
(Loss)/profit on ordinary activities before taxation		(339)	294
Taxation on (loss)/profit on ordinary activities	5	(3)	(1)
(Loss)/profit for the financial year		(342)	293

All results arise from continuing operations.

There are no recognised gains and losses other than the result for the year and consequently a statement of total
recognised gains and losses has not been presented as part of the financial statements.

Balance sheet

			30 June 2012		30 June 2011
	Notes	£'m	£'m	£'m	£ ' m
Fixed assets
Other financial assets	$\overline{7}$		679		326
Debtors: due after one year	6		57		62
Deferred tax	8		1		L
			737		389
Current assets
Debtors: due within one year	6	37,616		35,725
Other financial assets	$\overline{\phantom{a}}$	124		139
Cash and cash equivalents	$\mathfrak{g}$	526		1,019
		38,266		36,883
Creditors: due within one year
Other financial liabilities	$\overline{7}$	(94)		(112)
Borrowings	11	(249)		(767)
Other creditors	12	(33, 574)		(31, 108)
		(33, 917)		(31, 987)
Net current assets			4,349		4,896
Total assets less current liabilities			5,086		5,285
Creditors: due after one year
Other financial liabilities Borrowings	$\overline{7}$ II	(606) (851)		(389) (925)
			(1, 457)		(1, 314)
Net assets			3,629		3,971
Capital and reserves Called up share capital	13		3,660		3,660
Reserves	14		(31)		311
	15		3,629		3,971
Shareholders' funds

These financial statements on pages 6 to 20 were approved by the board of directors on 24 October 2012 and were signed on its behalf by:

Pais Rounde M Pais Director

Note of historical cost profits and losses

	Year ended	Year ended
	30 June 2012	30 June 2011
	$\mathbf{f}'$ m	$£2$ m
Reported (loss)/profit on ordinary activities before taxation	(339)	294
Market value (gain)/loss on external derivative interest rate instruments	(67)	19
Market value loss/(gain) on intra-group derivative interest rate instruments	43	(5)
Market value (gain)/loss on external derivative cross currency interest rate swaps	(49)	13
Market value loss/(gain) on intra-group derivative cross currency interest
rate swaps	49	(13)
Fair value adjustment to borrowings - loss/(gain)	30	(21)
Amortization of bonds	(10)	(5)
Historical cost (loss)/profit on ordinary activities before taxation	(343)	282

Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the company's financial statements.

Basis of preparation

The financial statements are prepared on a going concern basis under the historical cost convention except that derivative financial instruments are stated at their fair value. The financial statements are in accordance with applicable UK accounting standards.

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. Consequently the company has taken advantage of the exemption from preparing a cash flow statement under the terms of Financial Reporting Standard No. 1 (Revised 1996).

The company is exempt under the terms of Financial Reporting Standard No. 8 from disclosing related party transactions (but not balances) with entities that are wholly owned by a member of the Diageo group ("group" undertakings") or investees of the Diageo group.

Dividends paid and received

In the financial statements the dividend information is recorded in the period in which it is approved.

Foreign currencies

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Assets and liabilities denominated in foreign currencies are translated into sterling at the financial year end exchange rates. Exchange gains and losses are taken to the profit and loss account.

Financial liabilities

Borrowings are initially recorded at cost (where cost is equal to fair value at inception), and are subsequently amortised using the effective rate method. The fair value adjustment for all loans designated as hedged items in a fair value hedge are shown separately as a net figure. Any difference between the proceeds, net of transactions costs and the settlement or redemption of borrowings is recognised over the term of the borrowings using the effective interest rate method.

Financial instruments

The company's accounting policies under UK GAAP namely FRS 26 - Financial instruments: measurement and FRS $29$ – Financial instruments: disclosure are the same as the group's accounting policies under IFRS, namely $IAS\ 32$ – Financial instruments: disclosure and presentation and $IAS\ 39$ – Financial instruments: recognition and measurement. These standards are effective from 1 July 2005. The company has taken the exemption not to provide all the financial instrument disclosures, as IFRS 7 disclosures are given in Note 23 to the group financial statements.

Accounting policies (continued)

Derivative financial instruments

On behalf of Diageo plc and its subsidiaries (the 'group'), the company participates in hedging of foreign exchange exposures arising on group transactions and the underlying net assets of the group's foreign subsidiaries by using forward contracts and currency swaps.

Foreign exchange contracts used for managing transactional and translational exposure are generally matched with offsetting positions with other group undertakings. Foreign exchange gains or losses are taken to the profit and loss account.

The company participates in the group's interest rate management and uses interest rate swaps in the management of the interest rate exposure arising on the group's borrowings.

At the group and company level, derivative financial instruments are recognised in the balance sheet at fair value that is calculated using discounted cash flow techniques taking into consideration assumptions based on market data.

At the group level, the purpose of hedge accounting is to mitigate the impact of potential volatility in the profit and loss account of the changes in exchange rates or interest rates, by matching the impact of the hedged item and the hedging instrument in the profit and loss account. To qualify for hedge accounting, the hedging relationship must meet several conditions with respect to documentation, probability of occurrence, hedge effectiveness and reliability of measurement. For group purposes, at the inception of the transaction the company documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking all derivatives designated as hedges to specific assets and liabilities. For group purposes the company also documents its assessment, both at the hedge inception and on a quarterly basis, as to whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, highly effective in offsetting changes in fair value or cash flows of hedged items.

For the purposes of the group consolidated financial statements prepared under International Financial Reporting Standards the group designates derivatives which qualify as hedges for accounting purposes as either: (a) a hedge of the fair value of a recognised asset or liability (fair value hedge); or (b) a hedge of the cash flow risk from a change in interest rates or foreign exchange cash flows (cash flow hedge); or (c) a hedge of the foreign exchange movement from revaluation of investment (net investment hedge).

The group uses derivative financial instruments to manage the currency and/or interest rate risk to which the fair value of certain assets and liabilities are exposed. Changes in the fair value of derivatives that are fair value hedges are recognised in the profit and loss account, along with any changes in the relevant fair value of the underlying hedged asset or liability that is attributable to the hedged risk. If a hedge relationship is dedesignated, fair value movements on the derivative continue to be taken to the profit and loss account while any fair value adjustments made to the underlying hedged item to that date are amortised on an effective interest basis through the profit and loss account over its remaining life.

For the purposes of the company's statutory financial statements any change in the fair value of derivatives is recorded in the profit and loss account. Fair value hedge accounting is applied for interest rate swap derivatives only.

Deferred taxation

Full provision is made for timing differences between the recognition of gains and losses in the financial statements and their recognition in tax computations using current tax rates. The company does not discount these balances.

Notes to the financial statements

1. Interest income

	Year ended 30 June 2012 $\pounds$ ' m	Year ended 30 June 2011 £ ' m
	437	580
Interest from fellow group undertakings Other deposits and swaps	103	110
Market value differential on foreign exchange contracts		42
Market value gain on intra-group derivative interest rate instruments	117	42
Market value gain on external derivative interest rate instruments	194	37
Market value gain on intra-group cross currency interest rate swaps		13
Market value gain on external cross currency interest rate swaps	50
Fair value adjustment to bonds in hedge relationship		21
Amortization of bonds	10	5
	913	850

2. Interest expense

	Year ended 30 June 2012 $\pounds$ ' m	Year ended 30 June 2011 f'm
Interest to fellow group undertakings	693	333
Other loans, borrowings and swaps	130	106
Bank loans and overdrafts	12	11
Market value differential on foreign exchange contracts	47	7
Market value loss on intra-group derivative interest rate instruments	160	37
Market value loss on external derivative interest rate instruments	127	56
Market value loss on intra-group cross currency interest rate swaps	50
Market value loss on external cross currency interest rate swaps		13
Fair value adjustment to bonds in hedge relationship	30
	1,250	563

Market value movement of interest rate derivatives in fair value hedge relationship amounted to £30m, the movement of fair value adjustment on bonds in hedge relationship amounted to £30m loss.

3. Other operating (expense)/income

	Year ended 30 June 2012 $\pounds$ ' m	Year ended 30 June 2011 $£2$ m
Foreign exchange result on operations	(8)
Margin on transaction hedging	8
Market value movement on transactional foreign exchange derivative
transaction	(1)	(1)
Other expense	(1)
	(2)

Fees in respect of services provided by the auditor: statutory audit - £40,935 (2011 - £45,000), group audit £89,037 (2011 - £81,400) were paid on behalf of the company by a fellow group undertaking. There were no fees payable to the auditor in respect of non-audit services (2011 - £nil).

4. Directors and 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 (2011 - £nil).

5. Taxation

(i) Analysis of taxation charge for the year	Year ended 30 June 2012 $\pounds$ ' m	Year ended 30 June 2011 £ ' m
Current tax
Overseas corporation tax	(3)	(1)
Total current tax charge	(3)	(1)
Deferred tax Charge for the year
Total deferred tax	۰
Taxation on (loss)/profit on ordinary activities	(3)	(1)

5. Taxation (continued)

(ii) Factors affecting current tax charge for the year	Year ended 30 June 2012 $\pounds$ 'm	Year ended 30 June 2011 f'm
(Loss)/profit on ordinary activities before taxation	(339)	294
Taxation on (loss)/profit on ordinary activities at UK corporation tax rate of 25.5% (2011 - 27.5 %)	87	(80)
Expenses not deductible for tax purposes	(91)	(1)
Group relief received for nil consideration		81
Double tax relief
Overseas corporation tax	(3)	(1)
Current ordinary tax charge for the year	(3)	(1)

6. Debtors

	30 June 2012 $\pounds$ ' m	30 June 2011 £ ' m
Due within one year
Amounts owed by fellow group undertakings	37,598	35,693
Other debtors	18	32
	37,616	35,725
Due after one year Amounts owed by associated undertakings	57	62

Amounts owed by fellow group undertakings represent transactions with companies in the Diageo group with which the company has a long term financing relationship. These financing relationships are expected to continue for the foreseeable future. For the purposes of financial statement classification, amounts owed by group undertakings that do not have a specified repayment date are regarded as short term and consequently are considered to have a fair value which is not materially different to the book value.

Diageo formed two ventures in South Africa with third parties. DHN Drinks (Pty) Limited and Sedibeng Brewery (Pty) Limited are associates to the Diageo group. The company provides long term funding to these entities amounting to £57m (2011 - £62m).

Notes to the financial statements (continued)

7. Other financial assets and liabilities

				2012
	Non- current financial assets £'m	Current financial assets £'m	Current financial liabilities £'m	Non-current financial liabilities £'m
External derivative assets/(liabilities):
Foreign exchange contracts - transaction (on
group level)	$\boldsymbol{4}$	27	(36)	(8)
Foreign exchange contracts - other		7	(29)
Interest rate derivatives	268	3		(147)
Cross currency interest rate swaps	218
	490	37	(65)	(155)
Intra-group derivative assets/(liabilities): Foreign exchange contracts - transaction (on
group level)	9	37	(26)	(3)
Foreign exchange contracts - other	43	50
Interest rate derivatives	137		(3)	(230)
Cross currency interest rate swaps				(218)
	189	87	(29)	(451)
Total derivative assets/(liabilities)	679	124	(94)	(606)

Market value of interest rate derivatives in hedge relationship amounted to £nil, the fair value adjustment on bonds amounted to £nil.

The company entered into external cross currency interest rate swaps on behalf of a group fellow company, Diageo Capital plc, market value amounted to £218m at balance sheet date. The external deals are mirrored through Diageo plc to Diageo Capital plc, the ultimate beneficiary. Market value of intra-group cross currency interest rate swaps amounts to a liability of £218m presented due after one year.

$\cdots$

7. Other financial assets and liabilities (continued)

Fair value movements of cross currency interest rate swaps are taken to the profit and loss account: foreign exchange component of change in market value is presented as foreign exchange result on operations, the interest related amounts are recognised as interest income.

External derivative assets/(liabilities):	Non- current financial assets £'m	Current financial assets £'m	Current financial liabilities £'m	AULL Non-current financial liabilities £'m
Foreign exchange contracts - transaction (on	5	47
group level) Foreign exchange contracts - other		38	(44) (20)	(3)
Interest rate derivatives	116			(43)
Cross currency interest rate swaps	159			(7)
	280	86	(64)	(53)
Intra-group derivative assets/(liabilities): Foreign exchange contracts - transaction (on group level) Foreign exchange contracts - other Interest rate derivatives Cross currency interest rate swaps	4 35 $\overline{7}$	47 6	(45) (2) (1)	(4) (69) (104) (159)
	46	53	(48)	(336)
Total derivative assets/(liabilities)	326	139	(112)	(389)

Derivative assets and liabilities have been recognised at fair value since the adoption of FRS 26 on 1 July 2005. The company does not use derivative financial instruments for speculative purposes. All transactions in derivative financial instruments are undertaken to manage risk arising from underlying business activities at the group level.

$2011$

8. Deferred tax

	30 June 2012 $\pounds$ 'm	30 June 2011 $\pounds$ n
Deferred taxation at the beginning of the year Recognised in profit and loss account
Deferred taxation at the end of the year

Deferred taxation assets have been recognised to the extent that it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred taxation assets, where realisation does not meet the more likely than not criterion, have not been recognised.

9. Cash and cash equivalents

The company has entered into a joint and several guarantee with other UK undertakings of Diageo group such that any balance on the company's bank accounts within the joint cash-pool may be offset against the bank balances or overdrafts of those companies included in the cash-pool.

Cash at bank as at 30 June 2012 was £nil (2011 - £7m) and liquidity funds were £526m (2011 - £1,012m).

10. Fair value of financial instruments

Fair values

The fair values of derivative financial instruments are estimated by discounting the future cash flows to net present values using appropriate market interest rates prevailing at the year end. These are based on values obtained from third parties.

Amounts owed to or from fellow group undertakings represent transactions with companies in the Diageo group with which the company has a long term financing relationship. These financing relationships are expected to continue for the foreseeable future. For the purposes of financial statement classification, amounts owed to or from group undertakings that do not have a specified repayment date are regarded as short term and consequently are considered to have a fair value which is not materially different to the book value.

Notes to the financial statements (continued)

11. Borrowings, facilities and financial liabilities

Financial instruments comprise net borrowings, including borrowings from group undertakings, together with other instruments deemed to be financial instruments under FRS 26 including long term debtors and other long term creditors. Disclosures dealt within the following two notes exclude short term debtors and creditors where permitted by FRS 26, but include short term borrowings to and from group undertakings.

(i) External borrowings

	Currency	Year end interest rate $\%$	30 June 2012 $\pounds$ ' m	30 June 2011 £'m
Due within one year:
Eurobond 2012	Euro	1.674		(676)
Collaterals	Various	Various	(130)	(91)
Bank overdrafts	Various	Various	(119)
			(249)	(767)
Due after one year:
Eurobond 2014	Euro	6.625	(805)	(899)
Fair value adjustment to borrowings			(46)	(26)
			(851)	(925)

The interest rates shown above are contracted on the underlying borrowings before taking into account any interest rate protection. None of the borrowings are secured on assets of the Diageo group.

11. Borrowings, facilities and financial liabilities (continued)

The company had, along with other Diageo plc financing companies, available undrawn committed bank facilities with third parties as follows:

	30 June 2012	30 June 2011
	$\pounds$ ' m	$£2$ m
Expiring:
Within one year	745	776
Between one and two years		727
After two years	1,484	671
	2,229	2,174

Commitment fees are paid on the undrawn portion of these facilities and accounted for on an accruals basis. Borrowings under these facilities will be at prevailing LIBOR rates (dependent on the period of drawdown) plus an agreed margin. These 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 the group's 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 associates' profits after tax, to net interest). They are also subject to pari passu ranking and negative pledge covenants.

Any non-compliance with covenants underlying Diageo'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 notes and the inability to access committed facilities. Diageo was in full compliance with its financial, pari passu ranking and negative pledge covenants throughout each of the years presented.

Notes to the financial statements (continued)

12. Other creditors: due within one year

	30 June 2012 $\pounds$ 'm	30 June 2011 f'm
Amounts owed to fellow group undertakings	33,535	31,068
Accruals and deferred income	39	40
	33,574	31,108

Amounts owed to fellow group undertakings represent transactions with companies in the Diageo group with which the company has a long term financing relationship. These financing relationships are expected to continue for the foreseeable future. For the purposes of financial statement classification, amounts owed to group undertakings that do not have a specified repayment date are regarded as short term and consequently are considered to have a fair value which is not materially different to the book value.

13. Share capital

	30 June 2012 $\mathbf{f}'$ m	30 June 2011 £m
Allotted, called up and fully paid: 73,200,000,000 ordinary shares of 5p each	3,660	3,660

.

Notes to the financial statements (continued)

14. Reserves

	Profit and loss
	account
	£'m
At 30 June 2011	311
Loss for the financial year	(342)
Dividends paid
At 30 June 2012	(31)

15. Reconciliation of movement in shareholders' funds

	30 June 2012 $\pounds$ ' m	30 June 2011 £ ' m
(Loss)/profit for the financial year Dividends paid	(342)	293 (187)
Net (reduction in)/addition to shareholders' funds Shareholders' funds at the beginning of the year	(342) 3,971	106 3,865
Shareholders' funds at the end of the year	3,629	3,971

16. Immediate and ultimate parent undertaking

The ultimate parent undertaking of the company is Diageo plc, a company incorporated and registered in England. The consolidated financial statements of Diageo plc can be obtained from the registered office at Lakeside Drive, Park Royal, London, NW10 7HQ.

17. Guarantees

In the year ended 30 June 2012 the company guaranteed the debt of a third party amounting to £30 million.