Customers are de-stocking

Global drinks giant Diageo cut its full-year profit guidance and launched a new cost-cutting plan after both sales and profit growth slowed sharply in its second quarter and it warned of a further slide in consumer confidence.

The maker of Guinness stout, Smirnoff vodka and Johnnie Walker scotch said it was being hit by customer de-stocking, mainly in Europe and by a more general drop in consumer confidence.

Responding to the downturn, Diageo said it would launch a restructuring programme to cut GBP 100 million from the company’s annual cost base at an exceptional cost of GBP 200 million in the second half.

With most of its sales generated outside the UK, the company is set to benefit in 2009 from the sharp fall in the pound. The pound’s fall could add GBP 200 million to operating profit in the current year and a further GBP 200 million in the following year should sterling remain weak.