Bloomberg News

Swatch Rises to Record as Profit Growth Accelerates

February 04, 2013

Swatch Group AG (UHR), the biggest maker of Swiss timepieces, reported accelerating profit growth that beat analyst estimates as the company sold more Omega and Longines watches and expanded production capacity at its factories.

Net income increased 27 percent to 880 million Swiss francs ($967 million) in the second half of 2012, according to Bloomberg calculations based on full-year results released today by the Biel, Switzerland-based company. That compares with the first half’s 25 percent gain. Full-year profit rose to 1.6 billion francs, exceeding the 1.49 billion-franc average of 15 estimates compiled by Bloomberg.

Swatch gained as much as 4.7 percent to a record in Zurich trading. The company is benefiting from higher exposure to mid- range timepieces than competitor Cie. Financiere Richemont SA (CFR), which has a greater concentration in the high-end segment, said Rene Weber, an analyst at Bank Vontobel in Zurich. Richemont said Jan. 21 that revenue growth in Asia stalled during the third quarter. Swatch said it expects the Swiss watch industry to expand 5 percent to 10 percent per year over the long term.

“The big surprise was the improvement in margins at watch and jewelry, which improved in the second half,” Weber said.

The operating margin widened 0.8 percentage point to 23.5 percent for the year after a first-half decline, Swatch said.

Swatch shares rose 2.9 percent to 532.50 francs at 9:39 a.m. in Zurich trading. Richemont added 1 percent to 77.85 francs.

Full-year operating profit rose 23 percent to 1.98 billion francs, beating the 1.88 billion-franc average estimate.

‘Healthy Growth’

Earnings at the production unit, which makes components for watches, rose 37 percent, with profit as a proportion of sales widening almost 4 percentage points to 20 percent. The unit sells movements -- the mechanisms that make watches tick -- for Swatch Group’s own brands, as well as to third parties.

“The signals from the markets around the world clearly indicate continued healthy growth potential for the Swiss watch industry,” the company said.

Swatch said Jan. 10 that gross revenue climbed 14 percent in 2012. Sales from the watch and jewelry unit climbed 16 percent to 7.3 billion francs in the year, “with growth distributed over all continents,” the company said.

Swatch proposed a 17 percent dividend increase to 6.75 francs per bearer share and 1.35 francs per registered share.

Chief Executive Officer Nick Hayek said Jan. 30 he expects mainland China’s watch market to expand about 10 percent in 2013, helped by demand for mid-range and entry-level pieces. Hayek has said he sees no reason for the Swiss watch industry not to have “healthy” growth this year.

To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net


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