Decrease of Swatch Group sales in the first half-year

Strategy
With its 18 brands, the Swatch Group is present in all segments, and is a fully vertically integrated company, from production to distribution. The Group is ideally placed worldwide, with its own retail network including e-commerce and its own customer service. The Groupcontinuously makes long-term investments, not only in research and development of innovative and unique products, but also in the close to 150 production facilities in Switzerland. As a result, the Group occupies an unparalleled position in the Swiss as well as the worldwide watch industry.

Development in the segments and countries
After the slowdown in the fourth quarter of 2018, sales in the first half of 2019 achieved very good levels, despite negative currency effects of CHF 29 million. In Mainland China, Japan and the USA, growth was very positive in all price segments.

The strong position of the Group’s brands, especially in Mainland China, made them a preferred target for grey market activities. In the first half of 2019, uncompromising action was taken against grey market dealers, especially in Europe, the Middle East, Eastern Europe and South America, even though this resulted in a short-term negative impact on sales in the triple-digit millions. In the long term, this will lead to positive effects in the major markets. Sales in Hong Kong, an important sales market with attractive margins, suffered from political turbulence. This resulted in a double-digit decline in sales. Sales in the Group’s own retail and e-commerce recorded positive growth.

Delivery bottlenecks in the area of watch exterior elements (cases, dials, watch hands, etc.) were reduced in the first half of 2019, but have not yet been completely eliminated. Further improvement is expected in the second half of the year.

Net sales in the Electronic Systems segment increased by 11.0% to CHF 151 million. This segment continues to be characterised by its outstanding innovativeness, which was decisive in achieving a positive operating result, despite price erosion in US dollars.

Personnel and Training
The workforce decreased slightly by approximately 300 persons compared with December 2018, to 36,800 persons at the end of June.

The Swatch Group promotes vocational education at all levels. At the end of June 2019, approximately 170 persons successfully completed their vocational training, of which approximately 150 in Switzerland. In all, more than 700 persons in Switzerland and abroad are in training during the course of the year, either as apprentices learning the watchmaker and related technical trades, or as students in the Group’s six international customer service watchmaker schools in Miami, Kuala Lumpur, Shanghai, Hong Kong, Pforzheim and Manchester.

Operating result and net income
Operating result decreased by -13.0% to CHF 547 million compared to the previous year. Operating margin was 13.4% (previous year: 14.7%). Net income totalled CHF 415 million (-11.3% compared to the previous year) or 10.2% of net sales (previous year: 11.0%).

Investments
Across all segments, the Swatch Group invested a total of CHF 235 million in non-current operating assets in the first half of 2019, practically unchanged from the previous year. In addition to further investments in optimisation and flexibilisation of production capacities, investment was also made in the Group’s own retail network and customer service.

Cash Flow and net financial position
After-tax operating cash flow generated in the first half of 2019 was CHF 376 million, slightly less than in the previous year.

The repurchase of treasury shares with a market value of CHF 35 million in the first half of 2019 completed the share buyback program 2016-2019, with a total volume of CHF 959 million. The net financial position at the end of June was approximately CHF 700 million.

Inventories
Inventories increased slightly from the beginning of the year by 2.6% to approximately CHF 7.1 billion. The increase occurred in finished products and can be attributed to suspension of deliveries to grey market dealers.

Outlook second half-year 2019
The Swatch Group anticipates strong growth in the second half of 2019, due on the one hand to continuing solid demand in the most important markets, and on the other to the fact that the second half of 2018 was characterised by a poor fourth quarter. The launch of numerous innovative new products by the brands in all price segments will further stimulate sales. The successfully implemented e-commerce, especially in the middle and basic segment, will generate dynamic growth in the second half of the year. The Group expects positive sales growth for the entire year in comparison to the previous year.

Executive Group Management Board and Extended Group Management Board: additional members named The Board of Directors of the Swatch Group made the following appointments to its Executive Group Management Board and the Extended Group Management Board: Peter Steiger, Chief Controlling Officer (CCO) and already member of the Extended Group Management Board, has been appointed member of the Executive Group Management Board. Mireille Koenig, co-Chief Legal Officer (CLO), Daniel Everts, co-Chief Legal Officer (CLO), Roger Juillet, CEO of Nivarox-FAR and member of the Management Board of ETA, Lionel a Marca, Vice-President and Head of Technical and Development Management for Blancpain and Harry Winston, have been appointed members to the Extended Group Management Board.

Appointments are effective as of August 1^st 2019. The appointees’ previous responsibilities will be retained and unchanged.

August 22, 2019