UPDATE 4-Diageo keeps Dublin Guinness site, to build new one

(Adds union comment, update shares, changes to joint dateline)

DUBLIN/LONDON, May 9 (Reuters) - British drinks maker Diageo will spend millions on a new brewery near Dublin, but Guinness fans in Britain and Ireland will still get their dark beer from the historic brewery in the heart of the Irish capital.

The London-based beer and spirits maker DGE.L said on Friday it will renovate its central Dublin brewery at St James's Gate to supply these drinkers, but will close two smaller sites by 2013 and cut its Irish brewery workforce by more than half.

In five years, when the new brewery opens after an investment of 520 million pounds ($1 billion) and smaller ones at Kilkenny and Dundalk are closed, Diageo says its Irish brewing workforce will be cut by 250 from its current 450.

The move means a reprieve for the St James’s Gate site near the River Liffey, where Arthur Guinness started brewing his stout beer in 1759 after purchasing the dormant brewery with 100 pounds he had been left in his godfather’s will.

“Every option was looked at. That includes the closure of St James’s Gate. We did some research, we listened to our consumers, we heard what everybody said and we understand the importance of St James’s Gate,” David Gosnell, Diageo’s global supply director, told a Dublin news conference.

Diageo Chief Executive Paul Walsh said the move had been prompted by efficiency gains to be made by focusing most of its Irish beer production on one site, and also to meet the growing export demand for Guinness especially from Africa and Asia.

“This reaffirms Diageo’s commitment to Guinness and at 650 million euros is the largest investment in the history of Diageo,” Walsh told a conference call. Beer earns a fifth of Diageo’s profit, of which Guinness accounts for around half.

But Walsh declined to specify what cost savings would be made as these will only occur in 2013 and beyond. Diageo will take a one-off charge of 120 million pounds to implement the plan in its accounts for the year to June 2008.

Surplus land on the 55-acre St James’s Gate site and the two breweries being closed has a current value of around 400 million pounds, the company said.

Walsh said the new brewery site has yet to be determined and the group is looking at a number of options. The move will raise its Irish annual brewery capacity by 20 percent to 9 million hectolitres, with 6 million from the new brewery.

Ireland’s SIPTU trade union called for all redundancies to be voluntary. “Obviously the fact that the company expects to generate large profits from disposing of property assets means it will be in a strong position to provide adequate compensation to employees,” said SIPTU branch organiser John Dunne.

The new greenfield brewery will produce Guinness for export and other beers such as Harp and Smithwick’s for the Irish market, while the Guinness Storehouse, Ireland’s leading visitor attraction, will remain on the St James’s Gate site.

“This is a major investment that secures the future of brewing in Ireland. I also welcome the company’s intention to retain and upgrade the St James’s Gate brewery which is of great historic significance to Dublin,” said Ireland’s Deputy Prime Minister Mary Coughlan.

The drinks company launched a review last June of its Irish brewing operations, following its move in 2004 to close its London Park Royal brewery and move Guinness production to Dublin. The St James’s Gate site also exports Guinness-flavour extract to 42 other Guinness breweries around the world.

Sales of Guinness, which gets its trademark dark colour from dark roasted barley, fell 7 percent in Ireland and 3 percent in Britain during Diageo’s last financial year to the end of June 2007, but worldwide sales grew 3 percent helped by growth in Africa, especially Nigeria, and also in Asia.

Shares in Diageo, which also makes Smirnoff vodka and Johnnie Walker whisky, were up 1 percent to 10.38 pounds by 1447 GMT in a London market off 0.9 percent. (Additional reporting by Paul Hoskins in Dublin; Editing by Jason Neely and Quentin Bryar)