Comment: When a sense of timing is well worth toasting

The shot in the arm for the sector, involving one new Diageo distillery and more likely, two, comes just a week after rival Pernod Ricard revealed it was investing a further £40m in expanding four of its Scotch distilleries, de-mothballing another, and opening a bottling line.

As mentioned here, the sector is on a roll. Expansion of capacity makes financial and strategic sense because the whisky industry is benefiting from a virtuous circle.

Diageo chief executive Paul Walsh told me once that “all the stars have to be aligned” when he had to decide whether to embark on significant expansion, either through major organic investment or big acquisitions. Well, surging demand for Scotch in emerging markets such as Asia, Latin America and even sub-Saharan Africa means there is enough earnings visibility to justify such massive investment. That, in turn, will drive further revenue growth, which in turn underpins the case for continued future investment.

Diageo, Scotland’s biggest whisky group, and its chief rival, Pernod’s Chivas Brothers subsidiary, together account for more than half of the sector. It is no coincidence that they are both turning on the financial taps now. It is a highly-conducive backcloth for whisky export growth. Periodic patent issues in rogue “whisky” producers such as India aside, the barriers to entry of the Scotch industry are not so much high, as mountainous.

The cachet in a cask just cannot be replicated for emerging market consumers outside the two prime whisky producers of Scotland and Ireland.

On a separate political note, although Diageo’s latest investment will have been based on cold commercial analysis, as a by-product it will surely complete the mending of fences between the group and the Scottish political establishment after a rocky period.

That stemmed from Diageo’s controversial decision in 2009 to close down its historic Johnnie Walker bottling plant in Kilmarnock and its grain distillery at Port Dundas in Glasgow. It cost hundreds of jobs as the group shifted its bottling to its site at Leven in Fife, and Diageo’s name was not so much the water of life but mud.

The company’s political stock rose the following year when it opened the £40m Roseisle distillery in 2010, while last year First Minister Alex Salmond attended the Gleneagles golf tournament as Diageo’s guest.

The latest step-change in its ambitions, together with the move by Chivas Brothers’, had Scotland’s Finance Secretary John Swinney stressing the whisky industry’s importance to the Scottish economy. We’ll drink tae that, John.

In the gutter, looking up at the stars

AS OSCAR Wilde said in different circumstances, you would have to have a heart of stone not to laugh. The Spanish government, teetering on the brink of being the next southern European economic domino to fall, wants to recapitalise its banks with money from Europe. But it does not want the ignominy of a full European bailout, such as had to be suffered by the likes of Greece, Ireland and Portugal. It might be picky on financially puritanical northern Europe’s part, but surely this Spanish grandee-fixation with its amour-propre is a tad out of place when the abyss of lengthy macro recession/depression looms for the European Union and, conceivably, beyond.

Today, the Spanish treasury plans to auction up to €2 billion (£1.6bn) of bonds. Spain may find out that the financial markets considers it a busted flush, and then its negotiations with the European Union on bailout niceties would look even more farcical.

Bigger things are at stake. Does the EU go the eurobond route out of the sovereign debt crisis at the inevitable expense of national sovereignty, or does the whole single currency project go the way of the dodo with a big backwash for us all?

With hindsight, governments, banks and consumers have been living on tick for at least a decade. In this context, Spain’s pride is a sideshow.