Diageo to cut jobs at Baileys as Irish profits hit

Further lay-offs are anticipated at the Irish operations of drinks giant Diageo, owner of Guinness and Baileys, after the group's annual results revealed a 9 per cent profits slump in the Republic.

Ironically, the axe is expected to fall at Baileys, which reported double-digit growth worldwide for the third year running, rather than at the brewing division, which suffered flat sales and significant deterioration in its larger market.

Redundancies will be considered as Baileys strives to lower its cost base, a push that has already led to the departure of 25 workers under a voluntary redundancy package this year. The distiller is determined to reduce overheads while increasing production by more than a third, said Baileys chief executive Mr Frank Fenn.

But speculation that Diageo, which recorded worldwide pre-tax profits of €2.16 billion in the year to the end of June from €2.03 billion over the previous 12 months, was planning a long-term withdrawal from Dublin was dismissed by Mr Brian Duffy, managing director of Irish operations, who said the company was proving its competitiveness within the group.

Diageo Ireland, employing 2,600, reported a dip in sales across all brands, with lager slipping 6 per cent and Guinness 4 per cent, although the stout held market share for the first time in a decade. Sales of Smirnoff Ice, Smirnoff Black Ice and Smirnoff Red fell by 5-6 per cent during a year in which the Government imposed a levy on alcopops.

Net revenues were 970 million, broadly in line with last year. Operating profits of 214 million were down 9 per cent on an organic basis.

The economic downturn and a shift towards drinking at home had harmed beer revenues, said Mr Duffy. He added: "Our sales represent discretionary sales for the consumer, and they tend to be the first that suffers when consumer confidence suffers, so it has been a pretty tough year for the industry."

While Guinness remains a static brand in Ireland, sales worldwide climbed 2-3 per cent. But the group is adopting a cautious outlook, saying talk of a recovery in markets is premature. Chief executive Mr Paul Walsh said: "There are signs that trading conditions are improving in North America, Great Britain and Spain but further evidence of a more broadly based recovery will be required before we conclude that there is a sustainable upturn."

The firm suffered early this year because of the war in Iraq and the outbreak of SARS.

In the past 12 months, Diageo sold US food group Pillsbury and fast-food chain Burger King and jointly bought the Seagram drinks empire to focus on its drinks business.