Swatch misses target but outlook is good

The luxury segment is where the watchmaking industry is making its money Keystone

The Swatch Group has announced a lower-than-expected 2004 net profit of SFr512 million ($430.7 million), blaming "major negative currency effects".

But the world’s largest watchmaker said on Wednesday that it was upbeat about its performance so far this year.

It reported a “very positive, encouraging start to 2005, with record sales and results for the months of January and February”.

The group, which includes brands such as Breguet, Blancpain, Omega, Longines and Tissot, said its net profit was 4.1 per cent up on the previous year’s figure, despite adverse currency movements of SFr33 million.

The United States dollar lost about eight per cent against the franc in 2004, reducing export earnings when expressed in Swiss francs.

Luxury goods

Operating profit was SFr651 million – up from SFr594 million in 2003 – helped by a rise in consumer spending on luxury goods.

But the figure fell short of the average forecast of SFr662 million by ten analysts polled by Reuters.

Sales in 2004 increased by 4.7 per cent to SFr4.15 billion, with the group attributing the rise to growth in Asia and the Middle East.

The Biel-based group reported “above-average” growth in the luxury watch segment where margins are the highest.

Swatch added that it aimed to raise operating margins further, specifically through a continued shift in the product mix towards the luxury goods segment.

Subdued

Growth in the firm’s low-price bracket, which includes the Swatch and the children’s Flik Flak brands, has been subdued.

Swatch, which has been eager to make acquisitions but has not yet found a suitable target, said in a statement on Wednesday that it planned to buy back SFr250 million worth of shares to return cash to shareholders.

“Overall the result was a touch lower than forecast but the outlook is very bullish,” commented analyst Jon Cox at Kepler Equities.

“They have also listened to investors with the share buyback programme, with the promise of more to come,” he added.

Swatch said it planned to raise its dividend this year by 21 per cent to SFr1.75 per bearer share and by 35 centimes per registered share.

Excellent outlook

Swatch did not achieve the performance of some of its peers in 2004 but Kepler’s Cox did not seem too concerned.

“2004 was probably a year the company would prefer to forget when compared with its peers… But the long-term outlook for the group is excellent,” he commented.

In a related development underlining the current momentum in the watch sector, the Federation of the Swiss Watch Industry said on Tuesday that Swiss watch exports rose by 5.4 per cent year-on-year in February to SFr851.9 million.

The top ten importers of Swiss watches and movements so far this year are the United States, followed by Hong Kong, Japan, Italy, France, Germany, China, Britain, Singapore and the United Arab Emirates.

swissinfo with agencies

Key facts

The Swatch Group is the largest watchmaking concern in the world.
It has a host of watch brands, including Breguet, Blancpain, Omega, Longines, Tissot, Rado, Hamilton, Certina, Calvin Klein and Swatch.
Swatch was the official timekeeper at the Olympic Games in Atlanta (1996), Sydney (2000) and Athens (2004).
Omega is to take over responsibility at Turin (2006), Beijing (2008) and Vancouver (2010).

In brief

Financial figures 2004:

Net profit: SFr512 million (+4.1 per cent compared with 2003)
Sales: SFr4.15 billion (+4.7 per cent)
Operating profit: SFr651 million (+9.6 per cent)
Proposed dividend: Bearer share – SFr1.75 (+21 per cent)
Registered share: SFr0.35