DIAGEO IS set to invest more than £1 billion over five years in Scotch whisky production, unveiling plans to build up to two new distilleries in Scotland, expand warehouses and existing plants, and create renewable energy facilities to help power the sites.
The world’s biggest spirits group by revenues said the expansion plans would increase its Scotch production capacity between 30 and 40 per cent, and add more than 100 new jobs at the company. It is considering three sites for the first new distillery, which would produce about 10 million litres of alcohol a year, and will move forward on a second distillery if global demand justifies the development.
Emerging markets are driving Scotch sales across the market, said Paul Walsh, chief executive, with Diageo, the top-seller, commanding about a third of global sales. Scotch sales at the group rose 50 per cent since 2007, to about £3 billion this year, led by the Johnnie Walker brand.
Scotch represented almost 40 per cent of operating profits last year, almost a quarter of volumes and 27 per cent of net sales.
In spite of its scale, Mr Walsh said yesterday he had no plans to spin off the division: “In the foreseeable future, I don’t see any advantage in making the Scotch business a separate entity.”
He said he would be disappointed if it took until 2015, the company’s target date, to derive half of all sales from emerging markets, compared with 40 per cent today. Acquisitions have supplied part of the group’s growth, including recent deals to buy a Turkish raki maker, a Chinese Baidu company and a Brazilian producer of cachaça, the South American country’s bestselling spirit.
Analysts said the announcement made clear the role organic growth would play over the coming years, particularly after several years of investment in sales and distribution networks.
“This is not just a call on China . . . what is attractive is Scotch’s broad-based acceptance by the emerging middle classes from all regions,” analysts at Redburn said.
Diageo estimates the building work will create about 250 construction jobs a year. Shares rose 4.25 per cent in late trading. – (Copyright The Financial Times Limited 2012)
