Diageo warns of further job losses

Published on Saturday 22 August 2009 19:00

DIAGEO has warned that any government alternative to its decision to axe 700 jobs and close the Kilmarnock bottling hall could force the company to move 30 per cent of its spirits bottling overseas and prompt job losses elsewhere in the company.

Bryan Donaghey, managing director of Diageo in Scotland, also dismissed a government backed report, arguing that it had "nothing new to say" and that there was still "a very large gap" between Diageo's plans and the "alternatives being mooted".

The drinks giant caused a political storm last month when it announced it was to close its Kilmarnock facility where Johnnie Walker whisky has been bottled since 1820, with another 200 jobs to go at the Port Dundas Distillery in Glasgow.

It is understood that the Scottish Government is working on proposals from a report commissioned by Scottish Enterprise from the consultants BDO Stoy Hayward that would offer Diageo a greenfield site in Kilmarnock to build a bottling plant in an attempt to keep jobs in the town.

But speaking to Scotland on Sunday, Donaghey insisted Kilmarnock had to close if the firm was to remain competitive. He said: "We want to keep bottling Johnnie Walker in Scotland. By making that decision, we have already compromised ourselves from a purely financial point of view. There is nothing new in the report from BDO Stoy Hayward. Its proposal adds another 100 million to the options already on the table for around 70 jobs. That is a big value gap. Given that we have already compromised financially that will be very difficult to bridge."

Donaghey emphasised that Diageo was proposing to create 400 jobs by expanding its packaging plant at the Cameronbridge distillery at Leven in Fife, so that the net job loss across Scotland was 500. But he warned that the future of Cameronbridge could only be guaranteed as long as it stayed competitive.

He added: "What people tend to forget is that 30 per cent of the bottling activity in Cameronbridge is not Scotch. It is products such as gin, vodka and rum, spirits that do not have any heritage in Scotland whatsoever.

"At the moment we can be competitive because we can invest and we have scale. Maintaining that efficiency and scale is very important and if we start to lose that scale we undermine the whole operation. The simple answer is yes, this bottling could move overseas. We produce Smirnoff all over the world so the argument is we can just disgorge it in different places."

Diageo is expected to remain bullish when it presents its full-year results on Thursday.

It has predicted organic profit growth of between 4 per cent and 6 per cent despite a sales slide in the third quarter.

De-stocking by the firm's US wine and spirits distributors saw sales fall 7 per cent in the three months to March.

Its Russian markets and duty free business have also declined. The firm has slashed stock levels to minimise the impact of reduced sales on profits.

On Wednesday Jean-Franois Van Boxmeer, the chief executive of Heineken, is expected to tell the market that the rate of decline in beer sales at Scottish & Newcastle's UK business has slowed and that the brewer is opting for value rather than volume.

Edinburgh brewer S&N was carved up by Heineken and Carlsberg 18 months ago. Heineken paid more than 7.4bn, including debt, to acquire S&N's operations in Britain, Ireland, Finland, Portugal, Belgium and India.

Analysts are expecting Van Boxmeer to say this week that beer markets are continuing their contraction in Northern and Western Europe and that sales have depleted in Russia.