Diageo splashes out to tap whisky boom

LONDON Wed Jun 6, 2012 7:14am EDT

A signage is seen on the outside of Diageo offices in west London October 10, 2008. REUTERS/Toby Melville

A signage is seen on the outside of Diageo offices in west London October 10, 2008.

Credit: Reuters/Toby Melville

LONDON (Reuters) - Diageo Plc (DGE.L), the largest producer of Scotch whisky, is to invest over 1 billion pounds ($1.5 billion) in the drink over the next five years to meet growing demand from the emerging markets of Asia, Latin America and Africa.

Rivals are also expanding, with the world's second-biggest Scotch producer Pernod Ricard (PERP.PA) unveiling a 40 million pound investment last week at its malt distilleries to boost supplies of its top sellers like Ballantine's and Chivas Regal.

Diageo, which makes Johnnie Walker, J&B and Bells whisky and has around a third of the market, said it is seeing strong growth in BRIC markets - Brazil, Russia, India and China - and beyond, as drinkers worldwide acquire a taste for the Scottish tipple.

"We are looking beyond the BRIC countries and while not as large as the BRICs there are huge opportunities in countries like Colombia, Vietnam and Indonesia which are large markets with emerging middle classes," Chief Executive Paul Walsh said on Wednesday.

The British company plans to build a new malt distillery, expand a number of existing ones, develop plans for a second new distillery and a possible third if the 10 percent plus annual sales growth of recent years is sustained for the next three or four.

"If Scotch delivers as forecast, Diageo will enter a new era of above-trend growth," Redburn analyst Chris Pitcher said.

Diageo's Scotch whisky sales have risen 50 percent over the last five years to nearly 3 billion pounds last year, creating a third of group profit. In the last half of 2011 the Scotch market saw volumes grow 8 percent and sales some 14 percent.

SET TO EXPAND

Walsh said three existing sites had been identified for the first new distillery including Inchgower and Glendullan in the Speyside whisky heartland in north east Scotland, and Teaninich slightly further north, while nearly half of its exiting 28 malt distilleries were set to expand.

The new distillery will have the same production of Diageo's Roseilse distillery in Speyside of 10 million liters of alcohol a year, which when it opened in 2010 was the first new malt distillery to open for over 30 years and also the biggest.

If a second distillery is built in two to three years' time, total group malt whisky production will increase by 30-40 percent at the end of the five-year period, Walsh added.

Some 500 million pounds is earmarked for distilling and also to expand its warehousing site and create second site both in central Scotland, while the other 500 million pounds was to cover working capital while the spirit matures.

Diageo said its investment will create 100 new jobs at the group, some 250 construction jobs over the five-year period and generate a further 500 jobs throughout the Scottish economy.

Its shares were up 2.3 percent at 1,552 pence by 6:00 a.m. EDT (1000 GMT), outpacing the FTSE 100 .FTSE which was up 1.2 percent.

(Editing by Erica Billingham)

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