Swatch Group Has 16.7% Half-Year Income Gain

The Swatch Group, the world’s largest watchmaker, posted a 16.7% gain to $170.5 million in half-year net income. Its Aug. 24 report cited strong sales in luxury watches in the United States and Asia and heavy marketing of its role as the 2004 Olympic Games’ timekeeper as contributing reasons.

The Swiss conglomerate sells 18 brands covering all major price segments of the watch market as well as electronic timing systems, watch movements, components, and private-label timepieces. Total half-year sales rose 8.6% to $1.55 billion.

Sales of finished watches tallied $1.13 billion, for a growth rate of 13.8%. That surpassed the 10.8% half-year gain by members of the Federation of the Swiss Watch Industry (representing more than 90% of the Swiss industry), which Swatch says confirms that the company has “reinforced its position as a market leader and increased its [global] market share.”

The Group’s report said its luxury and prestige brands segment is still experiencing the fastest growth, and it cited the vintage luxury Breguet brand along with Omega, Rado, and Longines as especially successful. In mid-priced brands, Tissot and cK are the two best sellers, while in the mass market, the Swatch watch held its own against tough competition from non-Swiss watches. The 2004 Olympic Games drew “particular attention to the Swatch brand among an international public,” the report said.

Swatch Group’s management was optimistic about the second half and the year’s overall results. “Provided the Swiss franc remains weak against the dollar, and the world is largely spared exogenous shocks, business can be expected to continue to develop quite positively,” said its report.

In a related story, a complaint by two former employees against Swatch Group alleging tax evasion and harassment was dismissed by the U.S. Department of Labor in August. The Wall Street Journal and Financial Times, as well as a Swatch Group statement, said the former Asia-based financial controllers accused it of evading millions in taxes in several countries (including the United States) through a procedure called “transfer pricing.” The two filed their complaint under the Sarbanes-Oxley Act (a U.S. law protecting corporate whistleblowers) because they claimed they were harassed by company officials after they reported their findings. Swatch denied the allegations, saying its own investigation found no wrongdoing.

The Labor Department said that since the men were neither hired nor employed in the United States, and their allegations concerned actions outside the country, they weren’t covered by Sarbanes-Oxley.