Strong Swiss Franc hinders Swatch Group profits

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Strong sales growth at Swatch Group during the first half of the year was impacted by exchange rates as the Swiss franc continued to strengthen.

Based on constant exchange rates gross sales were up 8.5% across the group to CHF 4.535 billion (£2.951bn) but unfavourable exchange rates between the Swiss currency and those of Swatch Group’s world markets saw that figure cut to 4% or CHF 4.347billion (£2.828bn).

Gross sales in the Watches & Jewellery segment grew by 8.8% at constant rates, 4.3% at current rates.

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Production also increased by 8.8% despite a serious fire at the group’s Swiss ETA movement manufacturing facility in December 2013 that is believed to have cost the group CHF 200million in sales.

The group took on 800 new employees in the first half of 2014, with 460 of those in Switzerland. As of last month the group employ 34,000 worldwide.

As projected, operating profits were down 8.8% on the previous year to CHF 830million (£540m) because of the effect of negative currency, the cost of marketing during the Sochi Winter Olympics and the ETA fire; however operating margin reached 20.2%.

The group’s net income of CHF 680 million during H1 were 11.5% below H1 2013, offering a 16.6% return on net sales.
Swatch Group has a positive outlook for the second half of the year which it believes will offering a better exchange rate comparison while ETA is well on the way to recovering following the fire.

Swatch Group reported that all markets, except a small number of European countries, remained on course to grow in comparison to 2013 ‘very high’ figures. Anticipated product launches including Omega’s Master Co-Axial range and Swatch’s Sistem51 are also predicted to fuel ‘robust growth’ in H2 2014.

Harry Winston, Swatch Group’s latest acquisition, had made significant investments in a wider product range and store renovation, it was also reported to have increased availability of its high jewellery. The brand’s new watch collection, unveiled at Basel 2014, will be available in stores in H2 2014.

The ETA fire caused extensive damage to its electroplating department and the downstream watch movement production. While cleanup operations were completed in January 2014, long delivery schedules for replacement equipment meant the burnt out electroplating department could not be rebuilt within H1 2014. Reorganisation within the company will result in only minor production delays during H2.

Group inventory was up CHF 300million (£195m) resulting in a total worldwide stock worth CHF 5.729 billion (£3.724bn). This was attributed to the increased production at Harry Winston as well as production of Omega’s Master Co-Axial range and Swatch’s Sistem51.

Sales forecasts in the US and Japan for the second half of the year were ‘very positive’, while a ‘stronger sales trend’ noticed in mainland China continues.

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