Growth in Spanish bars boosts Diageo sales

The dominant distiller of Scotch whisky has reported a return to growth, in both volume and sales value.

The improvement for Diageo is partly driven by growth in Spanish bars and clubs.

This previously saw a sharp fall in sales with the country's economic downturn.

Germany and Austria also saw a strong growth in demand for Scotch, but sales are weaker in Asia, particularly Korea, Thailand and airport duty-free shops.

The London-headquartered drinks firm reported a 4% growth in Scotch whisky sales by volume, and a 6% growth in the comparable value of those sales.

Its figures looked much better through the impact of the weakened British pound. That meant there was a 20% rise in the reported value of sales.

Diageo is the world's largest producer of Scotch whisky

Because foreign sales for the world's biggest distiller of spirits are converted back into sterling, it saw total sales for the second half of 2016 rise by 15% to £6.4bn, and operating profit was up by 28% to top £2bn. The total volume of production fell by 1%.

Diageo represents about 40% of Scotch whisky production, and Scotch represents 27% of all the drinks the company sells. Its reported half-year growth was strongest for two of its main brands - Johnnie Walker and Buchanan's. Its other brands include Bells, Talisker and Dalwhinnie.

In the important US market, Johnnie Walker benefited from stronger promotion, with sales up 8%. In both Nigeria and Mexico, there was 22% growth for Johnnie Walker sales.

Chinese demand for Scotch whisky had stalled, with official disapproval of the extravagant corporate gift and hospitality culture. But the latest figures for July to December show it back to 5% growth.

Flat British sales

Korea had also been a country seeing strong growth in demand, but the Windsor brand has fallen sharply as demand grows for a rival, lower-alcohol, locally-produced drink.

Other Diageo products to do well in the second half of last year were US and Canadian whiskey. There was sharp growth, from a low base, in its tequila sales. Vodka revenue fell 2% worldwide, and was only growing in Africa.

In Britain, Diageo's sales were flat. The strongest brand was Tanqueray, up by 42%, reflecting the growth in premium gins, and Diageo's efforts to improve its distribution. Bailey's Irish Cream rose 2%, helped by Christmas promotions. Guinness, the leading beer produced by Diageo, saw flat sales.

Ivan Menezes, chief executive of Diageo, said: "Highlights this half include improved performance in our US spirits business and across our Scotch portfolio, driven by our focus on marketing with impact, innovating at scale and expanding our route to consumer.

"Progress on productivity supports growth, margin improvement and consistent strong cash-flow generation, as well as improving our agility."

In Scotland, Diageo runs 29 distilleries and two bottling plants at Leven in Fife and Shieldhall, Glasgow.