Swatch Group's results in 2018

This growth is more particularly generated by the Prestige and Luxury segment. Net profit was up 14.8%. The outlook for 2019 is favourable.

Key figures
In 2018, Swatch Group net sales increased by 6.1% to CHF 8.47 billion at current exchange rates (+5.7% at constant exchange rates). Operating income increased by 15.2% to 1.15 billion. The operating margin increased to 13.6% from 12.5% in the previous year. Net profit increased by 14.8% to 867 million, with a net margin of 10.2% (previous year: 9.5%).

Development in the segments and countries
In 2018, the strongest sales growth was posted by the prestige and luxury range, particularly by the brands Blancpain, Omega and Longines, despite the high level of back orders caused by capacity bottlenecks in the Habillage (watch exterior) sector. These amounted to a triple-digit million figure. The volume brands of the middle and basic price range performed well.

High growth rates were achieved again in Asia, both in wholesale and in the Group’s own retail including e-commerce, although a downturn in demand occurred in the last three months of the year, particularly in wholesale. Further clear market share gains were achieved in Japan. Sales in North America developed very positively, including the last three months of the year. Conversely, Europe displayed a mixed picture. Countries such as Great Britain and Switzerland increased their sales, while other countries such as France were very weak, especially at the end of the year, for the known reasons. Russia showed a strong upward trend in local currency. E-commerce grew strongly in the middle and basic segment, but varied from region to region. Major opportunities exist in this distribution channel in 2019, particularly for Swatch and Tissot. The increase of almost 10% in the Group’s retail sales, with the same number of stores, demonstrates the improvement in productivity.

The Electronic Systems segment generated net sales of CHF 273 million, corresponding to a growth of 2.2%. The operating result improved significantly in this segment and reached CHF 14 million (previous year: CHF 5 million).

Marketing
Marketing expenses intentionally remained and will remain at a high level, despite weakened sales in the 4th quarter of 2018. The year was marked by three major events: the Olympic Winter Games in Pyeongchang, South Korea with Omega; the Commonwealth Games in Australia with Longines; and the Asian Games in Indonesia with Tissot.

Personnel
In the year under review, the Group created over 1,700 new jobs. The largest build-up was seen in the production sector in Switzerland, with over 1,300 new jobs. The worldwide workforce at the end of December 2018 was approximately 37,100 employees, of which more than 18,000 in Switzerland.

Training
The Swatch Group promotes vocational training at all levels. At the end of the year under review, more than 700 persons were in training in Switzerland and abroad, either as apprentices learning watchmaker or related technical professions, 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 growth in the Watches & Jewelry segment, capacity utilisation in production improved significantly. Due to major capacity bottlenecks, particularly in the Habillage sector, the Group benefitted too little from its verticalised structure in the second half of the year. Nevertheless, the Group increased its operating result by 15.2% to CHF 1 154 million, corresponding to an operating margin of 13.6%. Net income amounted to CHF 867 million, or 10.2% of net sales.

Investments
In the year under review, the Swatch Group invested a total of CHF 504 million in non-current operating assets, including further massive investments in the production sector in Switzerland.

Research and development
In the year under review, 212 patent applications were filed versus 183 in the previous year, i.e., one patent per working day.

Dividend proposal
At the Annual General Meeting on May 23rd 2019, the Board of Directors of the Swatch Group will propose a dividend increase of 6.7% to CHF 8.00 per bearer share (previous year: CHF 7.50) and CHF 1.60 per registered share (previous year CHF 1.50).

Outlook for 2019
The Swatch Group anticipates healthy growth in 2019, despite the strong comparison basis in the first half of 2018. Demand is good and production problems and bottlenecks, particularly in the Habillage sector, will be resolved in the first semester. Further expansion of e-commerce, mainly in the middle and basic range, will open additional possibilities. The leadership position of the Swatch Group in China will become a major opportunity for the Group in 2019, even if ongoing market turbulence remains disruptive. Additional gains in market share are expected in Japan and the USA in 2019.

Growth drivers
Harry Winston will continue its dynamic growth trend in 2019, accelerated as well by the confirmation of the top position of the brand by the purchase of the Pink Legacy diamond.

Blancpain ended 2018 with record sales. The product Fifty Fathoms is one of the drivers of this success. The brand appeals ideally to the millennium generation, and strong growth is also expected in 2019.

Omega is celebrating the 50-year anniversary of the moon landing with various additional product launches on this theme. Additionally, in the second half of 2019, the “minus 1” special editions for the Olympic Games 2020 in Tokyo will be launched in Japan.

The high demand for the Longines V.H.P. (Very High Precision) collection could not be adequately served in the last quarter of 2018 due to production bottlenecks. Elimination of these bottlenecks will have a very positive impact on the development of the brand in 2019.

Tissot will introduce its smart T-Touch with its own operating system during 2019.

In January 2019, Swatch introduced Swatch Pay in Switzerland with great success, and further countries will follow over the course of the year. In February 2019, Swatch will launch the first Sistem51 products featuring the patented Nivachron balance spring with antimagnetic properties.

In future, all mechanical watches for Swatch Group brands will feature antimagnetic properties, either with the silicon balance spring or the Nivachron balance spring, both patented inventions. This means a substantial quality improvement in terms of precision and reliability. As a result, Swatch Group brands gain a clear advantage over many well-known brands in the Swiss and international watch industry which do not have similar antimagnetic quality characteristics. This improvement, which will be backed up by a longer guarantee period, will translate into clear market share gains in 2019 and beyond.

February 14, 2019