Diageo shares hit on global job cuts and falling profit forecasts

DIAGEO, Scotland's largest Scotch whisky producer, disclosed a £100 million cost reduction programme yesterday that will include axing jobs worldwide.

The world's biggest spirits producer also jolted the market by cutting its annual profit growth target amid the gathering global economic gloom.

Diageo said it would take a one-off 200m hit between now and the end of June to fund the restructuring across all its worldwide businesses.

Asked if it could affect its 5,000-plus UK workers, including 3,500 in Scotland, Diageo chief executive Paul Walsh said: "It could."

However, the company refused to give any further details of how many jobs would go and where.

Diageo's biggest base in Scotland is its packaging plant in Kilmarnock, employing 750.

It is understood that the restructuring may include possible office and depot closures. Again no detail was available yesterday, but the group has an extensive presence in the UK, Europe, North America, Latin America, Africa and Asia-Pacific.

Diageo, whose products include Johnnie Walker and J&B Scotch and Gordon's gin, revealed its reduced target for operating profit growth for the financial year to end-June 2009 is 4 to 6 per cent.

That compared with an earlier target of 7-9 per cent. The announcement initially sent Diageo's shares down 6 per cent, before they later closed off 3.3 per cent at 877.5p.

Walsh said the reduced target was due to the worsening economic climate and slowing sales growth at the group. Diageo's half-year sales growth to end-December slowed to 3 per cent from a July-September rise of 6 per cent.

Nick Rose, Diageo's finance director, said: "The world is not getting any better, we do not see any improvement in sales in the second half compared to the 3 per cent growth in the first half."

The group also said there would be no further share buyback programme for the rest of 2009 after it returned 352m to shareholders in the first half. Half-time operating profits lifted 16 per cent to 1.6 billion on sales of 5.1bn.The interim dividend rises 5.3 per cent to 13.9p.

Rose said that global Scotch whisky volumes in the half-year fell 10 per cent, but net sales of Scotch rose 3 per cent as the group pushed through price rises.

He said these rises amounted to about 4 per cent in the US and 1 to 2 per cent in the UK.

Geographically, the US and Africa proved particularly resilient for the drinks giant.

Profits in North America jumped 39 per cent to 682m although Johnnie Walker sales fell 3 per cent.

Diageo's "international" division, mainly comprising Africa and Latin America, saw profits jump 21 per cent to 420m.

Guinness proved the star turn in Africa, with sales up 25 per cent, while scotch brands in Latin America pushed sales up 5 per cent.

The picture was worse in Europe (including the UK) and Asia-Pacific. Operating profits in Europe fell 4 per cent, hit by a fast-worsening Spanish market in November and December. Sales in Great Britain were down 1 per cent, largely through a weakening beer performance.