Thu, Jun 07, 2012 - Page 10 News List

Diageo splashing out US$1.5 billion to tap whisky boom

Reuters, LONDON

Drinks group Diageo PLC is to invest more than £1 billion (US$1.5 billion) in Scotch whisky production over the next five years, creating hundreds of jobs, to meet growing demand from the emerging markets of Asia, Latin America and Africa.

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

The group, the largest producer of Scotch whisky with about a third of the market, is seeing strong growth in markets from Boston to Beijing, particularly for its expensive whiskies.

“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,” chief executive Paul Walsh said in a statement yesterday.

Diageo’s Scotch whisky sales have risen 50 percent over the past five years to nearly £3 billion last year, creating a third of group profits and in the second half of last year the Scotch market saw volumes grow 8 percent and sales about 14 percent.

Demand is led by emerging markets, such as China, Brazil and Russia, and it prompted the world’s second-biggest Scotch producer, Pernod Ricard, to unveil a £40 million 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 £500 million in the construction of distilling and warehousing, while it would commit a further £500 million in working capital for the resultant maturing spirits.

Diageo said its investment would create 250 construction jobs over the five-year period and generate a further 500 jobs throughout the Scottish economy.

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

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

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