Positive first half-year for Swatch Group

Production capacities have been maintained and enable the group to react swiftly to positive developments. The promising prospects for the second half of 2017 are accentuated by a number of new product launches. Production is benefiting from the growth of the group’s brands in both value and volume terms.

Development in the segments and countries
Sales performance in Watches & Jewelry was very positive, although it was dampened by the ongoing unfavorable exchange rate situation and lower Production sales to third parties. The entire segment achieved net sales of 3,576 million francs. Compared to the previous year, this is a decrease of 0.3% at current exchange rates, however, an increase of 1.2% at constant rates.

Sales performance in local currency varied, depending on the region. Mainland China recorded significant growth. Sales in Hong Kong have stabilized. Japan showed a mixed picture. Sales to local consumers were very positive, while sales to Chinese tourists decreased due to the negative currency situation. Swatch Group recorded very positive sales in the Middle East. In Europe, sales of the brands increased compared to the first half of the previous year, this in Great Britain, Spain, Italy, and also again in Switzerland. The North American markets showed growth in local currencies, especially in the Group’s own retail. With conversion of sales at the weak USD rate, no growth remains in CHF. Wholesale has started to regain trust in many regions, thanks to the good consumer mood and the positive results achieved in the Group’s retail business.

Production, which is integrated into the Watches & Jewelry segment, recorded lower capacity utilization than in the prior-year comparative period. Third-party brands are particularly insecure and delay orders. Conversely, Group brands increased orders compared to the previous year. Production of certain components, particularly watch cases, was again ramped up. Also, integrated gold production, from foundry to production of semi-finished goods, was centralized in one production site in Switzerland, which not only led to synergies but also optimized the entire production flow.

The Electronic Systems segment generated net sales of CHF 133 million in the first half of the year, corresponding to a slight decrease of 2.2%. Sales are very sensitive to the strength of the Swiss franc versus the USD and JPY, which did not favor this industrial area in the first half of the year. It can be stated that industry could not compensate for the Swiss franc shock. The operating profit in the Electronic Systems segment closed at break even.

Personnel
Again in the first half of 2017, jobs were deliberately maintained, particularly in Production, where the capacity utilization was less than in the previous year. This was at the cost of a temporarily lower operating margin. As a result, the number of employees at the end of June 2017 was approximately 35,000.

Training
The Swatch Group promotes vocational training at all levels. By the end of June 2017, more than 260 graduates received a professional diploma, of which 155 persons completed a regular apprenticeship in Switzerland. Roughly 150 apprentices were newly hired this year, so that the number of trainees in Switzerland is now approximately 450. Abroad, there are currently over 120 trainees, of which more than 60 at Glashütte Original alone. In addition, the group is training approximately 150 students in its own watchmaking schools in Miami (USA), Kuala Lumpur (Malaysia), Shanghai and Hong Kong (China), Pforzheim and Glashütte (Germany), and Manchester (UK). Almost all graduates have accepted positions within the Group.

Operating result and net income
Despite the lower utilization in Production and in the Electronic Systems segment, an operating result of 371 million francs was achieved, corresponding to an operating margin of 10.0%. Net income reached 281 million francs or 7.6% of net sales.

Product Highlights
The Omega Speedmaster, now celebrating its 60th anniversary, is and remains an absolute bestseller. The “Speedy Tuesday”, launched in January, was sold out online in approximately four hours. Swatch ensured good revenues with the launch of the New Skin, Swatch X You and Sistem51 Irony. The first editions of the Longines Master Collection Blue and the Tissot Ballade Silicium and T-race Cycling ensured high volumes. Particularly in the Prestige and Luxury segment, new products accelerated growth into the high double digits. Harry Winston grew not only with its high jewelry collections Lotus Cluster, Art Deco and Sunflower, but also with its new most exclusive watch models such as the Midnight Date Moon Phase. Breguet was successful with its new ladies’ watches Tradition and Phase de Lune, and Blancpain with the Villeret and Bathyscaphe collections.

Investments
Across all segments, the Swatch Group invested a total of 204 million francs in non-current assets in the first half of 2017. The Group’s retail network was selectively broadened with the opening of new boutiques in the best locations of growth regions, and Production was optimized with the latest equipment. Significant investment was also made in worldwide customer service.

Outlook second half-year 2017
The Swatch Group anticipates very positive growth in local currency in the second half of the year. In addition to its already strong own retail business, wholesale should also develop positively, due to the gradual dissolution of uncertainty among individual distributors. In addition, further growth will generate improved capacity utilization in all production areas.

Omega and the IOC have extended their timekeeping contract for the Olympic Games by an additional ten years, up to and including the Olympic Games 2032, so that Omega’s term as official timekeeper of the Olympic Games will now total 100 years. In the second half of the year, Omega will launch new products such as the Seamaster Planet Ocean Big Blue, the Speedmaster Racing Co-Axial Chronometer and the Speedmaster 38 mm Collection onto the market. Blancpain with the new Bathyscaphe 38 mm and the Villeret 6104 ladies’ watch, as well as Breguet with the Tradition Dame and the Classique Phase de Lune will support growth. Together with the new Harry Winston collections, the entire Prestige and Luxury brand sector will further accelerate growth in the second half of the year. Longines will cause a sensation and add further momentum with the Conquest V.H.P. (very high precision quartz movement with an almost infinite calender), as well as Tissot, with the launch of the Chrono XL NBA and Every Time Swissmatic. This Tuesday, Swatch launched the unique Swatch Pay with its full credit card function in Shanghai, in partnership with UnionPay and 11 Chinese banks.

Incoming orders have further increased in the last months in the technology companies, thanks to a significant advantage in different areas like the smallest integrated circuits with minimum power consumption (lowest power ICs), and the new Real Time Clock (RTC) modules.

August 24, 2017