UK: Diageo upbeat on Asia Pacific, despite Korea "mistake"

Diageo has conceded that it made a "mistake" in South Korea, but maintains that the future still looks promising for its operations in Asia Pacific.

In its H1 results, issued today (14 February), the region, which includes China, India and South Korea, saw net sales inch up by only 1% on the corresponding six-month period a year earlier. Operating profit for the region fell by 12%, as total operating profit for the group rose in organic terms by 9% to GBP1.41bn (US$2.78bn).

Diageo was stripped of its import licence into South Korea in June last year, after the company was found to be using unlicensed wholesalers in the country.

Speaking to just-drinks, Diageo CEO Paul Walsh admitted that the company had been in the wrong. "In Korea, that was our own mistake," he said. "We may think everyone (sells to unlicensed distributors), but the fact is, we got caught and we have to take our medicine. But I'm confident we will get our licence back."

Walsh declined to comment on when Diageo would regain its licence, saying only that he hoped it would be "in the first half of this year".

"In China, which is an investment-led market, we did see some parallel imports, thanks to a weaker dollar," Walsh noted.

In India, meanwhile, the Government has been looking to privatise its airport duty free operations over the last few months, leading to what Diageo has called "significant disruption" as a result of the tender process. Consequently, sales of Diageo's Johnnie Walker Scotch in the channel have fallen by half in the six months to the end of December. "Nobody could have predicted what has happened in India," Walsh added.

"All these are one-time issues," Walsh said. "We'll work through these, and we may have issues elsewhere.

"I think it's the nature of the beast. When you work in these markets and you want to build your business, you're going to have ebbs and flows. We'll get all this behind us in the first half and, fortunately, next year we'll be able to lap weaker numbers."