Jan 10, 2014
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Swatch sees double-digit 2014 growth as China improves

Jan 10, 2014

ZURICH, Switerland - Swatch Group SA, the world's biggest watch maker, said it expects double-digit sales growth this year on the back of stronger demand in China, easing concerns of a downturn in this key export market.

Swiss watchmakers sold less in China last year after the government cracked down on illegitimate gift-giving of luxury items, but Swatch - whose brands range from the cheap plastic watches which gave the group its name to pricey Omega and Breguet timepieces - has fared better than rivals.

This reflects the fact that its mid-market Tissot and Longines brands, which do not cost enough to be considered possible bribes, sell well to China's rising middle classes.

"Swatch Group will have double-digit growth (next year) even if mainland China is only growing single-digit. We are strong in all regions of the world," Chief Executive Nick Hayek told Reuters in a telephone interview on Friday.

He said the company, whose shares rose more than 3 percent, was seeing good growth in mainland China in the entry and mid-price segment, but also an improvement in the high-end category as growth at its main brand, Omega, was about to turn positive.

"There are still some problems in the luxury segment in mainland China ... customers and retailers are uncertain what to buy. There was a psychological shock, but the situation is normalising," Hayek said.

However the CEO said Swatch did not wish to become a big player in the new breed of "smart" watches being touted by tech companies such as Sony, Samsung and Qualcomm and which can replicate smartphones in making calls, accessing the web and running apps.

"We have all the knowhow but we do not want to build up stock of technology bombs people won't want to buy," Hayek said.

Swatch also posted a 9.1 percent rise in gross sales at constant currencies to 8.817 billion Swiss francs ($9.7 billion) last year, just short of estimates for 8.84 billion in a Reuters poll.


This compares with a 1.7 percent rise in total Swiss watch exports in the 11 months through November, a sign Swatch gained market share. Swiss watch exports to Hong Kong and China, which absorbed a quarter of total timepiece exports, fell 6 and 15 percent respectively.

Analyst Luca Solca at brokerage Exane BNP Paribas said Swatch's positive outlook for 2014 was important as it helped ease investors anxiety on luxury demand.

Hayek said 2 to 3 percentage points of the more than 10 percent growth in the core watch and jewellery segment was generated by jeweller Harry Winston, which Swatch bought last year. The acquisition is seen diluting the group's full-year margins.

Hayek said the company would have a "very good" net profit in 2013, even without the 402 million francs in damages received from U.S. jewellery Tiffany linked to the breakup of a joint venture between the two groups.

He said the group's launch in Switzerland of a mechanical watch at 150 francs, the Swatch Sistem51, was a huge success, even though the international launch had to be postponed until February or March due to capacity constraints.

Swatch shares rose 3.5 percent at 1046 GMT, outperforming a 1 percent rise in the European sector index and a 3.1 percent firmer rival Richemont.

Zurich-based traders said this was also due to short-covering after the shares lost almost 7 percent since the beginning of the year. Despite an above-average 28 percent rise last year, they still trade at a small discount to Richemont.

Citi analyst Thomas Chauvet said he appreciated Swatch's dominant market position and broad brand portfolio, but preferred Richemont's superior earnings growth and pricing power thanks to its high-end brands and its more balanced split between watch and jewellery activities.

Swatch is expected to post full-year earnings in early February, while Richemont will give an update on Jan. 20.

$1 = 0.9092 Swiss francs

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