Diageo Premium Whisky Brands Hit By Recession

[John]

Diageo is forecasting more challenging times ahead after profits dip.

Drink giant Diageo saw global economic woes take a chunk out of its profits in the year to June 30, with some of its key whisky brands suffering a large drop in sales.

The group said yesterday the downturn had affected all its markets, although Europe was hit harder than Asia and North America.

Diageo said organic net sales of iconic whisky brand Johnnie Walker - the world's best selling Scotch - plunged by 6%.

Net whisky sales were down 3% overall by value, although progress was made in some key markets.

Diageo's annual results came as pressure increased on the London-based firm to drop controversial plans to axe 900 Scottish jobs.

It intends to close its bottling plant at Kilmarnock - severing historic ties with Johnnie Walker - in addition to the Port Dundas distillery, in Glasgow.

Diageo - whose other whiskies include Bell's, Benmore, Buchanan's, Haig, J&B, Spey Royal, Vat 69, White Horse and a host of single and classic malt brands - delivered pre-tax profits of £2.02billion despite a "challenging"? year. The latest surplus compares with profits of £2.09billion in 2007-08.

Among the group's main brands, Johnnie Walker and J&B both lost ground in terms of annual sales but Buchanan's achieved growth on the back of increased demand in Venezuela, Mexico and Columbia.

Diageo hopes to save an extra £40million a year from its restructuring plans in Scotland, where it employs about 4,500 people and produces nearly 50million cases of whisky and white spirits.

Changes elsewhere in the group are expected to generate a further £120million of cost savings in the current trading year.

Other key brands in Diageo's portfolio include Guinness, Smirnoff, Captain Morgan rum, Bailey's Irish cream liqueur and Tanqueray gin.

Underlying drink sales across the group, which also owns the Gleneagles Hotel and golf courses in Perth-shire, were flat but the weak pound and cost-cutting pushed operating profits up by about £100million to £2.6billion.

Chief executive Paul Walsh said the firm had seen growth in vodka, rum, tequila and beer sales but gin and wine had been weaker in the period and whisky and liqueurs had been the biggest target for destocking among its customers.

He added: "This has been a very challenging year, Overall, however, our results demonstrate the resilience of the business.

"While the global economy appears to be stabilising, there is still uncertainty as to the sustainability and pace of any recovery.

"That being recognised, we expect to deliver low single-digit organic operating profit growth in fiscal 2010."?

Its shares fell 4% to 956p.

John

Source: Press & Journal