Swatch Group’s 2008 Profits Fall 17.4%

Net income for the Swatch Group, the world’s largest watchmaker, slipped 17.4 percent in 2008, to 838 million Swiss francs (about $723 million), in part due to losses in its electronics division, according to its annual report, released March 12.

However, it expressed a “cautious but not pessimistic outlook for the first months 2009,” and expects improvements in 2009’s second half. Unlike some other Swiss watchmakers, the company didn’t intend to cut jobs or reduce work hours, Swatch Group officials told Swiss and financial media.

In reviewing 2008, the Group report said that “after a promising start … the turmoil and enormous destruction of wealth in financial markets worldwide infected the economies of many countries, leading to cautious reactions, mainly at wholesale level, and in some parts of the world, to a noticeable drop in watch demand in the last two months of 2008.”

The Group’s gross sales grew 4.3 percent in local currencies to CHF 5.97 billion Swiss francs (about $5 billion). However “extremely volatile” foreign currencies and exchange rate losses weakened sales’ value by CHF 233 million Swiss francs—the highest since the company began in 1986. That reduced sales growth to 0.4 percent in Swiss franc terms (though still a record year in terms of sales), said the Swatch Group.

In the Group’s “Watches & Jewelry” segment, all price categories reported higher sales in local currencies in 2008 than in 2007, itself a very strong year. However, the “noticeable drop in demand” in 2008’s final months (mainly at wholesale level) reduced momentum in most brands and markets, said the Group report. “Even the luxury brands could not entirely escape this unfavorable trend.”

Even so, despite the global financial crisis, the Swatch Group increased its spending on marketing and “expanded retail activities … in strategic key locations” for its long-term growth.

In movement production, a continuing rise in demand for watch movements and components boosted gross sales of CHF 1.8 billion ($1.5 billion) in 2008, an increase of 7.7 percent.

“Despite a more challenging environment at the end of 2008, the current order books continue to be on high levels,” said the Group report. “Virtually no cancellations of orders had to be registered.” Increased volumes, high utilization of production facilities and “a more favorable product mix towards high-end watch movements,” all which helped improve the division’s operating margin.

However, the Group’s other major segment, “Electronic Systems,” saw gross sales fall 12.9 percent due largely to “a strongly impacted automobile sector and a slump in demand for mobile phones.”