Downturn drives Swatch profits lower

Swatch boss Nicolas Hayek was the bearer of bad news on Monday swissinfo.ch

The Swatch Group, the largest watchmaking concern in the world, has reported that its net profit fell by almost 25 per cent in the first half of the year to SFr231 million ($138.32 million).

However, in a statement from its headquarters in Biel, the group said the profit decline was really only 9.8 per cent because last year’s income had included an extraordinary sum of SFr44 million from a convertible bond, which was not applicable this year. The news sent the share price plummeting by 9.08 per cent to SFr132.77.

In addition, developments on the financial markets had made it impossible to achieve an adequate level of profitability on invested funds.

The group, which includes the Breguet, Blancpain, Omega, Longines, Tissot and Swatch brands, said first-half turnover and operating profit were slightly above the record levels achieved last year. However, it trimmed sales forecasts in line with analysts’ expectations.

Sales increased by 2.3 per cent to SFr2.022 billion, while earnings before interest and taxes rose slightly to SFr315 million.

The Swatch Group said it had lowered its growth sales forecast for the remainder of the year to between five and eight per cent, down from between 10 and 12 per cent in its budget target. The actual growth would depend on sales during the Christmas period, it added.

The group said the result for the year as a whole would depend on developments in the financial markets.

In its comments on the first half, the company said that it had problems filling orders for watches from Omega, Tissot, Swatch, Blancpain and Rado because of a “major shortage” of production capacity.

However, it said substantial investment in production facilities had permitted increased production of new models and the capacity problem had been more or less solved.

The increased capacity had led to a “considerable surge” in turnover in June and July compared with the same period last year.

The Swatch Group reported that in the first three months of the year, the United States market was characterised by turbulence on the stock market and fears of a recession, which had produced a reduction in sales.

Japan rode the storm well, while in the Pacific basin, Hawaii and on the US West coast, a significant decline in duty-free sales was seen due to the low number of Japanese tourists. However, in contrast, almost all European markets reported growth.

The Group said that efforts to expand and modernise the production of watches and components would continue as part of its ambitious development programme, although a certain amount of time was needed until the plans were fully implemented.

Income per bearer share for the first half was SFr37, compared with SFr48.06 for the comparable period last year.

swissinfo with agencies