Swatch Group Posts 16.7% Half-Year Income Gain

The Swatch Group, the world’s largest watchmaker, posted a 16.7% gain to $170.5 million in net income for 2004’s first six months.

The Group’s half-year statement, released Aug. 24, notes strong sales in luxury watches in the United States and Asia and heavy marketing of its role as the 2004 Olympic Games timekeeper. The Swiss conglomerate owns, produces and sells 18 brands covering all segments of the watch market; electronic timing systems; watch movements, components and private label timepieces.

Total half-year sales rose 8.6% to 1.973 billion Swiss francs ($1.550 billion). Sales of finished watches tallied 1.440 billion Swiss francs ($1.131 billion), a 13.8% “very sound growth” gain surpassing the 10.8% half-year gain in watch exports of members of the Federation of the Swiss Watch Industry (representing more than 90% of the Swiss industry).

That said, Swatch Group, “confirms the fact” that the watchmaker has “reinforced its position as a market leader and also increased its market share” of the global watch market. “Having enjoyed a huge demand” at the international watch fair in Basel, Switzerland, in April, it noted, its watches in all categories “continued to sell in large numbers in subsequent months, playing a key role in the substantial sales increase.”

Indeed, demand was so strong that “one of the challenges in the second half year,” claims the report, “will be to meet all the orders (in particular those from the Basel exhibition) and deliver the products to customers at the right time.”

Its luxury and prestige brands segment is “still the one that is expanding fastest,” says Swatch Group. Its vintage luxury Breguet brand, especially, “continues to enjoy strong demand,” though other luxury names—such as Blancpain, Glasshutte, Jacquet Droz, Leon Hatot and Omega—are “also selling extremely well.” Omega’s “dynamic growth,” it notes, “is continuing unabatedly in practically all regions and countries.” Rado and Longines, two of its upscale brands, are “also exhibiting very strong growth.”

In the mid-priced segment, Tissot and cK are the two best sellers, while in the mass market segment, the company’s popular plastic fashion Swatch watch, for which it is named, “held its ground well” despite tough competition from non-Swiss-made watches.

The 2004 Olympic Games in Greece have drawn “particular attention to the Swatch brand among an international public,” Swatch Group’s report said, leading the company to be “optimistic about the second half of the year.” Swatch is official timekeeper of the Olympics through the 2010 Winter Games and a major sponsor of the 2004 Olympics. Its logo was visible in various sport venues at the Games.

There was substantial sales growth (+10%) in its electronic timing systems, but business in its watch movements, components, and private label watches fell 2.5%, to 634 million Swiss francs ($797.7 million), largely because third-party customers were “very reluctant” to place orders. Sales began picking up noticeably after mid-May.

In general, Swatch Group’s top management said it has a “positive outlook” for the second half of the year and is optimistic about 2004’s overall results. “Despite relatively uncertain political circumstances, fears of further terrorist attacks, and an uncertain outlook for the Swiss franc, consumer behavior in Europe has stabilized and improved slightly, with larger growth being achieved in the U.S. and Asia,” it noted.

Provided that the Swiss franc remains weak against the dollar, and “the world is largely spared [any] exogenous shocks, business can be expected to continue to develop quite positively.”