Diageo, the world's biggest drinks group, has responded to the tough trading environment by initiating a £120 million restructuring that will cost about 900 jobs in Scotland as it closes a packaging plant and a distillery.

The overhaul, which will save an estimated £40 million in 2012, will involve the closure of its grain spirit distillery at Port Dundas, Glasgow, which has been producing whisky since 1810, and a packaging plant at Kilmarnock, Ayrshire.

The company, which owns brands including Johnnie Walker, J&B, Cardhu and Talisker, said the jobs would go over the next two years, although it said the changes in the region would also see 400 jobs created through the expansion of its packaging plant at Leven, Fife, where a new bottling facility will be built.

The move comes on top of the £200 million restructuring announced in February that was estimated to cut costs by £100 million in the financial year to June 2010 as well as reducing its global workforce of 23,000 by more than 1,000 posts.

Today, Diageo increased the forecast cost savings from February's overhaul by £20 million to £120 million while upping the forecast cost of implementing it to £270 million, of which £180 millon will fall into the new financial year.

The company also updated the market on charges relating to the overhaul of its brewing operations in Ireland. The plan announced last year had included a scheme to sell part of the Guinness brewery site at St James’s Gate in Dublin and build a brewery outside the city. However, it was put on ice in January due to the collapse of property values which meant that it was a poor time to be selling land.

Diageo said today that it would be pressing ahead with a revised proposal that would have "substantially the same scope as the original proposal, namely the restructuring of all three Diageo breweries in Ireland". It said the changes would add further exceptional charges of £40 million over two years on top of the £78 million hit taken last year.

A spokesman for Diageo said the Scottish restructuring was unrelated to demand for Scotch whisky, which remained strong, but was part of a wider efficiency drive.

He pointed out that Port Dundas only produced grain spirit for use in whisky, vodka and gin rather than any prized malts. Grain spirit production will be consolidated at the group's Cameronbridge distillery in Fife, which is being expanded.

The closure will cost 100 jobs at the distillery and 40 jobs at the nearby cooperage, although the group is hoping some of the coopers can be relocated to Cambus, Alloa.

The biggest job losses will result from the phased closure over the next two years of Diageo's packaging plant in Kilmarnock, where it has 700 staff.

Diageo is also shedding jobs at a warehousing facility at Hurlford, Ayrshire, which is being outsourced to Malcolm Group, a logistics company. Some 64 staff will transfer to Malcolm Group and another 36 will be relocated within Diageo.

Scotland is one of Diageo's most important operations, employing around 4,500 people and producing nearly 50 million cases of Scotch whisky and white spirits.

Des Browne, the Labour MP for Kilmarnock and Loudoun, described the news as "devastating", adding: "Every bottle of Johnnie Walker has a label which says that this whisky has been bottled in Kilmarnock since 1820."

But Diageo said it continued to invest in its Scottish operations, pointing out that a new £100 million state-of-the-art distillery would open in the autumn at Roseisle, near the Moray Firth, to cater for growing whisky demand in countries including Brazil, Russia, China and Mexico.

The announcement came as Edrington Group, a privately owned rival, reported a 30 per cent jump in pre-tax profits before exceptionals to £94.8 million in the year to the end of March, from turnover up 44 per cent to £419.9 million.

The group, which owns the Famous Grouse and The Macallan, said the increase had been achieved despite a difficult second half "as the effects of the global economic downturn impacted both consumers and the trade in many key markets".

It said that although this would affect its growth ambitions in the short-to medium term, it remained confident of long term prospects and continued to invest behind its brands.

Separately, the Scotch whisky industry was celebrating after an agreement was signed between the European Union and Turkey ending punitive duty rates on imported spirits.

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