Glass is half full for Diageo despite weakening markets

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DIAGEO, Scotland's largest whisky producer, has confirmed its upbeat profit guidance, despite weakening global markets.

Although underlying sales fell 7 per cent in the three months to 31 March – mainly due to de-stocking by its US wine and spirits distributors – the maker of Johnnie Walker maintained yesterday that it continues to expect organic profit growth of between 4 and 6 per cent.

Diageo, which also makes Guinness and vodka brand Smirnoff, earlier this year announced a restructuring programme, which is set to deliver 100 million in cost savings by next year.

The company yesterday refused to comment further on where planned job cuts would come. It employs around 5,000 workers in the UK, including 3,500 in Scotland.

Shares rose more than 3 per cent last night to 881p as chief executive Paul Walsh reiterated the previous forecasts despite a "more challenging trading environment".

Diageo said in February that it would axe jobs worldwide as part of its cost-saving programme but did not confirm whether its UK operations would be affected, although Walsh has not ruled out the possibility.

The firm, which runs its marketing operations from Edinburgh and has a 750-staff packaging plant in Kilmarnock, said it has seen a "significant decline" in Russian markets, while depressed economic conditions had also hit its global travel retail – or duty free – business.

Walsh, who is also chairman of the Scotch Whisky Association, said yesterday: "As we anticipated, trading in markets around the world has weakened in the second half of the fiscal year.

"In particular, there has been a significant decline in the Russian market from the beginning of January and the Global Travel Retail business continues to be adversely affected by the economic conditions."

The drinks giant, which sells more than 8 billion worth of alcohol a year in 180 countries, has suffered less from the impact of plunging sales than rivals such as Pernod Ricard, which posted gloomy sales figures in April.

Diageo has also managed to make marketing efficiencies – notably the lower cost of advertising since the credit crunch – as well as putting more emphasis on digital media.

Walsh explained: "We are taking the steps necessary to put ourselves in a position to emerge from this global downturn as an even stronger business."

Diageo also distills gin and vodka in Fife, operates acres of whisky bonds in Alloa – one of Europe's largest private warehouses – and a major packaging plant at Shieldhall in Glasgow. It also owns the prestigious Gleneagles Hotel.

This year, it is to open the new Speyside distillery at Roseisle – the first new distillery built in Scotland since 1990 – as part of a 100m investment. The new facility will add 10m litres of capacity. Currently, the group has 27 distilleries in Scotland.