Diageo reports £2.02bn profit

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The Independent Online

Guinness-to-Smirnoff firm Diageo today reported a £2.02bn profit despite a "challenging" year in which it shed jobs to cope with the economic downturn.

Diageo, which is the world's biggest drinks firm, saw its pre-tax profits fall slightly in the full year to 30 June, down from £2.09bn in 2008.

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

The firm has launched a restructuring programme to cut costs, including controversial plans to axe 900 jobs in Scotland.

These are aimed at saving the company £40m a year, while another initiative in its global operations aims to save £120m a year.

Diageo chief executive Paul Walsh said: "We took action quickly to manage these difficult times, reducing our cost base and refocusing marketing spend as consumer trends changed."

Mr 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 scotch and liqueurs had been the biggest target for de-stocking among its customers.

Campaigners are challenging the planned Scotland cuts, which involve the loss of 700 workers at the Johnnie Walker bottling plant in Ayrshire town, with another 200 at the Port Dundas distillery in Glasgow also under threat.

The company is intending to partially offset the cuts by creating 400 positions at its plant in Fife.

Diageo reported 4 per cent growth in organic operating profits for the year and a 15 per cent hike in reported net sales to £9.3bn. Both were helped by currency fluctuations and acquisitions.

The firm said Europe was severely hit by the economic downturn, with deterioration in Spain and Ireland particularly pronounced.

But it said British sales grew 2 per cent in the period despite difficult trading and had out-performed a declining overall alcohol market.

Spirits and wine sales led the strong performance and Diageo said it gained beer market share in pubs and bars.

Bell's and Baileys did particularly well, both in shop and pub sales, following a good Christmas.

But Smirnoff vodka sales were knocked 3 per cent amid heavy promotion of rival brands.

Diageo said Guinness stout was given a boost in its 250th anniversary year, with growth in market share in British and Irish pub trade while net sales were flat across Europe.

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

He said the year to 2010 would be "challenging", as figures will face comparisons against a "strong first quarter and a reasonable first half performance this year".

Diageo said its restructuring initiatives meant it suffered a £166m exceptional charge in the year to June, while two further charges totalling £190 million would be taken in this financial year.

Shares fell around 4 per cent today.