Walsh stands firm on closures as Diageo unveils surprise 6% sales fall

Published on Wednesday 14 October 2009 21:18

SPIRITS giant Diageo revealed yesterday that its first-quarter underlying sales fell a surprising 6 per cent, as the group stood by its controversial decision to close two Scottish sites.

The fall in sales at the group, which makes Smirnoff vodka, Captain Morgan rum and Guinness, came after what chief executive Paul Walsh told the shareholder AGM in London was a year of "unprecedented economic challenges".

The City consensus had been for a sales fall of just 2 to 3 per cent in the three months to end-September, but Diageo said it had been up against strong comparatives last year, when sales rose 6 per cent.

Shares in the company slumped 4.7 per cent to an eight-week low of 930.5p on the disappointing news, but later partly recovered to close down 2 per cent, or 20p, at 956p.

Walsh said stock levels of its spirits had increased in the first quarter last year, but that had not been repeated.

Walsh added that in the firm's biggest market, North America, stocks for Diageo's US spirits business were below those seen at end-June 2009.

However, he said he believed the performance was resilient, and the group remained on track to deliver its previous forecast of low single-digit organic operating profit growth in the current financial year.

The drinks giant announced last month that it was pressing ahead with the closure of its Johnnie Walker bottling plant in Kilmarnock and the Port Dundas grain distillery in Glasgow – triggering 900 job losses across the two sites. Diageo has said it will partly offset this by creating 400 jobs at its packaging plant in Fife.

Walsh agreed to meet Scottish representatives of the Unite union from both affected Scottish sites outside the AGM before the meeting. Sources described the exchange as "cordial but forthright".

Alex Howie, Unite shop steward at the Kilmarnock site, told The Scotsman: "They (Diageo] have been very hard. They are not moving an inch on their decision."

Inside the hall among about 200 shareholders, Port Dundas shop steward Bill Anderson said to the board that the decision had "devastated" the town of Kilmarnock and the workers at the Glasgow distillery.

But Walsh said although the closure decisions were "undoubtedly painful" there was no going back on them.

He said: "It would be misleading of me to suggest we could revisit this decision" and added that

he realised it was "not very comforting to those in Kilmarnock" that the company was investing elsewhere in the country.

He said he was "empathetic", but that it was his job to lead the company through difficult times, a responsibility he said he was "humbled" by.