Diageo cuts 900 jobs, closes distillery

Diageo PLC, the world's biggest spirits maker, said Wednesday it is cutting 900 jobs as it shutters a 199 year-old distillery and packaging plant as part of a cost-cutting restructure of operations in Scotland.

Diageo, which makes brands including Guinness stout, Smirnoff vodka and Johnnie Walker whisky, said that the restructuring will trim costs by some 40 million pounds ($66 million) in 2012.

The company said that the job cuts, to be made over the next two years, will be partly offset by the creation of around 400 new jobs through the expansion of another Scottish packing plant and a new cooperage.

The 120 million pound restructuring plan comes on top of a 200 million pound program announced in February, which the company expects to cut costs by 100 million pounds in the financial year to June 2010 and reduce the global work force by 1,000 from 23,000.

Diageo Scotland Managing Director Bryan Donaghey said that the latest plans were necessary to secure the company's business in a competitive global market.

"These decisions have been extremely difficult to take," Donaghey said. "We have only reached them after an exhaustive review of all the possible alternatives."

Diageo exports around 85 percent of its Scottish output to more than 180 markets worldwide.

It last month reported a 7 percent dip in sales in the quarter to the end of March. The drop was spurred by stock reductions by U.S. distributors and lower sales in duty-free outlets around the world.

Diageo added that it was continuing with a review of its plans for a sweeping restructure of operations in Ireland.

The company said in January that it was putting on hold controversial plans to shift some of its brewing operations from its historic St. James's Gate Guinness site in Dublin and build a new state-of-the-art brewery. The proposal was shelved as sales came under pressure amid the global recession.

Some 700 of the job losses will come from the closure of the company's packing plant in Kilmarnock _ each bottle of Johnnie Walker whisky currently has a label saying that the spirit has been bottled in Kilmarnock since 1820.

The company said that Kilmarnock faces "infrastructure limitations" and investing in its two other packing plants in Glasgow and Fife makes more commercial sense. Expanding the Fife plant will create around 400 new jobs, it said.

The remainder of the job cuts will come from the closure of the Port Dundas distillery and cooperage.

The distillery currently supplies grain spirit for Diageo's portfolio, providing around 39 million liters of alcohol each year.

It has been rebuilt twice in its 199-year history due to fire damage in 1903 and 1913 and stopped production during World War II.

The neighboring Dundashill Cooperage, which makes 85,000 hogshead casks easy year, dates back even further. It was founded in 1770, originally as a distillery.

Asked about the Diageo cuts, Prime Minister Gordon Brown noted that companies who make capital investment can receive new capital allowances introduced in the government's last budget to stimulate new investment.

"What we are seeking to do is have an investment-led recovery," Brown said during his weekly question and answer session in Parliament.