Swatch Group sales profits rise on luxury sales

24 august 2004

Article by Financial Times - Toby Shelley

SWATCH GROUP

Swatch said the luxury and prestige segment of its core market is expanding fastest, singling out the Breguet brand as a particularly strong performer,as the Swiss watchmaker reported a rise in first-half profits

The company said one of its challenges in the second half would be to meet all orders and deliver products on time.

Looking ahead, Swatch said business would develop “quite positively” assuming no major exogenous shock to the world economy and no deterioration in the currency situation. At present European consumer behaviour is more stable but growth in the first half was stronger in Asia and the US. Political circumstances remain “relatively uncertain”. Last year’s second half was strong and the board noted the benchmark set by that performance would be high for this year.

The company’s comments came as it released first half results that were in line with market expectations but, nonetheless, showed strong growth.

Net profits rose 16.7 per cent to SFr217m on sales up 8.6 per cent at over SFr1.97bn. Swatch has been little affected by currency fluctuations. In local currency terms, the rise in sales was 8.9 per cent.

By segment, the finished watch business dominates Swatch, accounting for some 58 per cent of sales. Operating results were 28.6 per cent up at SFr225m on sales up 13.7 per cent at SFr1.44bn, ahead of the Swiss industry average. By contrast, the watch parts segment saw a 33 per cent fall in operating profits to SFr18m on sales down 2.5 per cent. This was attributed to reluctance of customers to place orders before mid-May when the business showed signs of picking up. Current performance shows continued upturn.

Swatch’s electronic component division increased operating profits by 30 per cent to SFr39m on sales up 10 per cent. Demand is improving, inventories falling and price pressure easing. The company said the oscillator market had improved substantially.

In early morning trade Swatch shares were slightly higher at SFr153.75 in early morning trade.

Earlier this month the shares were hit after an investigation in the Financial Times revealing that some financial executives at the group feared its global “transfer pricing” policies could be challenged by regulators if they became known.

But the watchmaker said it was the victim of a campaign by former employees and denied claims that it had pursued illegal tax practices. It said that that the former employees behind the allegations only submitted their case to US authorities after an attempt by at least one of them to secure higher severance payments was rejected by the company.

Article by Financial Times - Toby Shelley