Swatch Group regains its smile

The watch industry’s world number one enjoyed dynamic growth across all its price segments in 2017, a year considerably influenced by the strong progress of the Prestige and Luxury sector. With a number of new product launches slated for 2018, the group is starting the year in a confident mood.

Stats
In 2017, the watchmaking juggernaut racked up net sales of 7.96 billion francs, up 5.4% at current exchanges rates (+5.8 at constant exchange rates). The overall operating result improved by 24.5% to CHF 1,002 million, while the operating margin grew from 10.7% last year to 12.6%. Net income increased 27.3% to CHF 755 million, with a net margin of 9.5% (compared with 7.9% the previous year).

Strategy
The very strong performance in the second half of the year once again confirms the validity of the Swatch Group strategy: to retain personnel even in difficult times; to continue investment in innovation and marketing; to view inventory not as a risk, but as an opportunity. These elements led to massive gains in market share in the second half of the year and will develop further positive impacts in 2018.

Group Overview
The Swatch Group, with its 20 strong brands and its own retail network, including e-commerce and omnichannel distribution, is very well set up worldwide. The Swatch Group also adhered to its consumer-friendly and defensive pricing policy, and did not adjust automatically local sales prices to the overvalued Swiss franc.

Highlights of the financial year 2017
Particularly the second half of 2017 was marked by highly accelerated sales growth of 12.2% in the Watches & Jewelry segment (excluding Production) at actual rates and with one of the best-ever December turn-over. The entire segment (including Production) achieved net sales of 7,702 million. Compared to the previous year, this was an increase of 5.4% at actual and 5.8% at constant exchange rates.

Highly accelerated sales growth was recorded in all price segments, particularly in the basic and middle range segment as well. Flik Flak, Swatch, Calvin Klein, Hamilton, Mido and Tissot achieved impressive growth rates in the second half of 2017, while export figures for the Swiss Watch Industry were clearly negative in these segments. This indicates a massive gain in market share in these segments.

The already strong position of the Swatch Group in Mainland China strengthened further due to marked growth in 2017. Sales in Hong Kong not only stabilized further during the year, but are on growth track. Japan recorded high single-digit growth during the course of the year. Also in the Middle East, the Swatch Group again recorded accelerated growth.In Europe, particularly sales in Great Britain, Italy, Germany, Austria, Benelux, and also again in Switzerland increased compared to the previous year. Only France and Spain lag behind in this respect. Growth in local currency also accelerated in the North American market during the course of the year.

Production integrated in the Watches & Jewelry segment already recorded good capacity utilization again in the second half of the year. In some areas, capacity constraints are already occurring, for example, in integrated gold production. Third-party brands are still hesitant with orders.

The Electronic Systems segment generated net sales of 267 million francs, corresponding to a growth of 2.7%. Sales are very sensitive in relation to the strength of the Swiss franc versus USD and JPY, which did not help this industry sector in 2017. The operating result in the Electronic Systems segment closed at 5 million (previous year:
10 million).

Personnel
The strategy of deliberately maintaining jobs proved itself once again in 2017, particularly in the production sector, where capacity utilization improved very quickly during the months in the second half of the year. As a result, the number of employees at the end of December 2017 was approximately 35,400.

Training
The Swatch Group promotes vocational training at all levels. At the end of 2017, more than 700 persons were in training in Switzerland and abroad, either as apprentices learning watchmaker and related technical trades, or as students in the Group’s six international customer service watchmaking schools in Miami, Kuala Lumpur, Shanghai, Hong Kong, Pforzheim and Manchester.

Operating result and net income
Driven by steady growth in sales in the Watches & Jewelry segment, capacity utilization in production continued to improve, so that an operating result of 1,002 million was achieved, corresponding to an operating margin of 12.6%. Net income amounted to 755 million or 9.5% of net sales.

Investments
Across all segments, the Swatch Group invested a total of 464 million in non-current assets in 2017. The Group’s retail network was further optimized in selective areas. Massive investment continued to be made in production, both in the latest production methods and in innovative production equipment and processes. Significant investment was also made in worldwide customer service.

Research and development
In the product sector, as well as in production processes with the latest materials technology, a large number of developments were completed and significant technological innovations were once again introduced during the operating year. The number of patent applications in 2017 was 183 compared to 185 in 2016; this means that on average a new patent application was filed every second day.

Outlook for 2018
The Swatch Group anticipates further very positive growth in local currencies in 2018, not only from its own distribution channels such as retail and e-commerce, but also from third-party channels. In addition, further growth will utilize the capacities of all production areas.

Once again, Omega, as official timekeeper of the 23rd Winter Games from 9th to 25th February in PyeongChang, South Korea, will deliver daily results and all the athletes’ data, and therefore be present in all the media. In addition, Omega will present on site the Seamaster Collection limited series PyongChang 2018 dedicated to the Games. Omega will also celebrate the 70th anniversary of the Seamaster and the 25th anniversary of the Seamaster Diver 300m in 2018, and will market special editions of the collections for these occasions. After the successful launch of the new “Trésor pour femme” collection in Japan and the USA in December, worldwide market introduction will take place in the first half of 2018.

Blancpain, with its Fifty Fathoms collection and the Blancpain Ocean Commitment, and Breguet, with its new Marine Collection, will cause a sensation and generate further sales growth. The Harry Winston brand further strengthens its market presence with the opening of new sales salons on Rodeo Drive in Beverly Hills, San Francisco, Istanbul, and Zurich, as well as an additional flagship store in Hong Kong Central.

Rado will strengthen its worldwide leadership position in ceramics with the launch of new collections with innovative materials and surface structures. Longines, with its Conquest V.H.P. collection (Very High Precision, extremely precise quartz movement with practically infinite calendar), will not only increase its market presence, but is also well on its way to achieving sales of 2 billion francs in the medium term. Longines will also be the official timekeeper of important sporting events such as the Commonwealth Games in Australia and the world equestrian and show jumping championships in the USA.

Tissot, one of the exclusive Swiss brands with over 1 billion francs in sales, will once again be the official sponsor and timekeeper for the Tour de France. The brand will introduce the new Tissot T-Race Cycling, and in doing so, will broaden the already well-known Tissot T-Sport Collection of timepieces which includes the Chrono XL NBA, the North American professional basketball league, and the MotoGP. In addition, the Tissot Chemin des Tourelles GMT, with a Powermatic 80 GMT watch movement featuring a 80-hour power reserve and dual-time display, will be launched. Tissot will also further expand its very close and successful partnership with Tmall in China.

Swatch and Tmall held a unique “Swatch Tmall Super Brand Day” on 12 January 2018 at the Swatch Art Peace Hotel in Shanghai, with a combination of on- and offline activities centered on the Swatch brand. Live streaming of this event was followed by over 24 million Tmall users. Chinese singer and actor Karry Wang also took part in this event as a new Swatch ambassador. The special Swatch model which he wore was sold out within hours. In addition, a great many fans immediately crowded the Boutiques.

In the Electronic Systems segment, demand is currently growing rapidly, thanks to groundbreaking developments, which naturally have been patented. Examples are the so-called miniature watch module, which enables production of ultraprecise quartz watch movements with an accuracy 30 times better than previous quartz movements, and the new real-time clock (RTC), which is used to optimize charging cycles for the battery management system in all batteries for hybrid and electric vehicles. Last but not least, a unique interface circuit for accelerometers was developed, which is used for drones, fitness trackers, mobile phones and other electronic devices.

Swatch Group, with its global presence and its unique and diverse distribution channels, including online, will continue to generate very dynamic growth in local currency in 2018. The very good start in January confirms sustained consumption in most regions and countries, not only in the prestige and luxury sector, but also in the basic price segments. 

February 15, 2018