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Diageo unveils £1bn plan to keep up with Scotch whisky orders

David Jones London

Drinks group Diageo is to invest more than £1 billion (R13bn) in Scotch whisky production over the next five years, creating hundreds of jobs and helping it meet growing demand from the emerging markets of Asia, Latin America and Africa.

The maker of Johnnie Walker, J&B and Bell’s whisky said yesterday that it planned to build a new malt distillery, expand a number of its other distilleries and develop plans for a second new distillery if global demand was sustained at expected levels.

The UK-based group, the largest producer of Scotch with about a third of the market, is reaping strong growth in markets from Boston to Beijing, particularly for its expensive whiskies as drinkers all over the world acquire a taste for the Scottish tipple.

“We expect that success to continue, particularly in the high-growth markets around the world, which is why we are announcing this major investment in Scotch whisky production,” Diageo chief executive Paul Walsh said.

Diageo’s Scotch whisky sales have risen 50 percent over the past five years to reach nearly £3bn last year, contributing a third of group profits.

In the second half of 2011 the Scotch market experienced growth in volumes of 8 percent and sales growth of about 14 percent.

Demand is led by emerging markets such as China, Brazil and Russia and prompted the world’s second-biggest Scotch producer, Pernod Ricard, to unveil a £40m investment last week to boost supplies of its top sellers such as Ballantine’s and Chivas Regal.

Over the next five years, Diageo said it would invest more than £500m in the construction of distilling and warehousing space, while it would commit a further £500m in working capital for the resultant maturing spirits.

Diageo said its investment would create 250 construction jobs over the five years and generate a further 500 jobs at its plants and throughout the wider Scottish economy.

Analyst Chris Pitcher at broker Redburn said Scotch production was a barometer of confidence and with demand well based, this new confidence in the industry was well founded.

“If Scotch delivers as forecast, Diageo will enter a new era of above-trend growth,” he said.

Diageo shares were up 2.1 percent at £15.48 by noon in London yesterday, in line with a firmer London stock market. – Reuters

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