The Pernod Ricard team were in London today (February 18) to flesh on the bones for their half year interim results which were announced last week.
A new malt distillery will be built as part of the investment, alongside plans to expand “a number of Diageo’s existing distilleries”. Detailed plans will also be developed for a second new distillery, which will be built if global demand for scotch is sustained at expected levels.
The company is also to invest in new warehousing capacity to house the millions of additional litres of scotch whisky which the distillation investment will produce.
Diageo chief executive, Paul Walsh said: “This is a pivotal moment in the development of the scotch whisky category for Diageo. Over recent years our brands have achieved remarkable, sustained global growth. Scotch whisky is Scotland’s most celebrated manufactured export, led by brands like Johnnie Walker, resonating with consumers from Boston to Beijing.
“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, committing over £1billion in the next five years, to seize that opportunity for global growth. This builds on the foundations we have already laid down over recent years through sustained investment in both production assets and in maturing Scotch inventories.”
The investment is to create “over a hundred new Diageo jobs, largely high value jobs in rural areas of Scotland”. It is also expected the investment will create an average of 250 construction jobs for each year of the investment period.
Diageo intends to take on about one hundred apprentices and graduate trainees over the term of the investment, and the company will also encourage its suppliers and construction contractors to focus on youth job creation and apprenticeships.
The investment programme is to include “bio energy solutions” planned to be implemented over the same timescale as the distillery expansion projects.
In the last five years Diageo has reported 50% growth in net sales of its scotch brands with total net sales approaching £3billion this financial year. Scotch represented 23% of Diageo’s volume, 27% of net sales and a third of gross profit in the financial year 2011. In the first half of financial year 2012, Diageo’s scotch category saw 8% volume growth and 14% net sales growth.
Over the five year period Diageo plans to invest more than £500 million in the construction of the distillation and warehousing capacity. This increased production capacity also requires Diageo to commit £500million in working capital for the maturing spirit, which will be laid down over the next five years. The exact total investment figures may vary over time depending on the progress of specific projects, but the overall commitment is expected to total over £1billion over the five years.
Diageo also plans to commit £5 million over five years towards “community initiatives as part of its sustainability and responsibility programme in Scotland”. This will include environmental initiatives and responsible drinking initiatives.