Strong franc hits Swatch profit

Profits dropped to SFr206 million in the first half of the year. Swatch

The Swatch Group has reported a 13 per cent drop in net profit.

This content was published on August 21, 2002 - 10:28

The company - which produces mass market watches along with several luxury brands - blamed the strong Swiss franc and sluggish sales of luxury goods.

The group, which includes the Breguet, Omega and Swatch brands, saw profit drop to SFr206 million ($137 million) in the first half of the year.

In a statement from its headquarters in Biel, Swatch said the strong Swiss franc had led to a negative currency effect of SFr70 million in sales or 3.4 per cent.

Sales in the first half were off by 3.9 per cent to just under SFr2 billion as the company suffered from reduced interest in its luxury brands after the September 11 attacks.

The world's largest watchmaking group saw operating income fall 9.4 per cent to SFr271 million during the period.

But Swatch Group chief executive and chairman Nicolas G. Hayek told swissinfo that he was pleased with the result.

"Very good job"

"I would say we have done a very good job in the watch business which is our core business," he said.

"Most of the jewellers and retailers were scared to death because of the very bad news everywhere and they did not buy too much but still we have increased sales by 1.1 per cent in local currencies," he added.

Commenting on the high value of the franc, Hayek said that he expected it to be more stable in the second half of the year.

Asked whether the group could do anything other than sit back and ride out the current storm of weak markets and strong franc, Hayek was defiant.

"Nobody sits back"

"Nobody sits back at the Swatch group. We naturally will have to cut our costs, improve our performance and do some currency hedging," he said.

The group has said that it is "very confident" about the remainder of 2002.

"If the situation stays the same as it is now, it's a positive outlook. It's good because we're going to have many more orders in the second half of the year," Hayek said.

"And we expect to have a better second half this year than last year. However, you and I cannot guarantee that political or other troubles will happen that could make consumers uncertain as they were last year," he added.

Analysts believe the optimism should help the Swatch share price recover after losing some five per cent on Tuesday in a jittery market.

Hayek told swissinfo that he believed Swatch shares were currently undervalued by between 60 and 70 per cent and called the stock exchange "perverse".

"Financial people are not industrial people. They cannot estimate the value of a company. They just go on the value of the last profit you have made," Hayek said.

"And all shares of companies like ours that are very solid and that have strong assets are always undervalued at the stock exchange... but it's going to change again and you're going to get the real value of these companies," he added.

by Robert Brookes and Karin Kamp

Key facts

Swatch is the world's largest watchmaking group.
Profits dropped to SFr206 million in first half 2002.
Company's share price dropped 5 per cent on Tuesday.

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