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Aug 4, 2010
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Swatch upbeat after record H1 sales, China strong

By
Reuters
Published
Aug 4, 2010

ZURICH, Aug 4 (Reuters) - Swatch Group (UHR.VX), the world's largest watchmaker, struck an optimistic note for the rest of 2010 after record sales and soaring profit in the first half, notably from China and Russia.

Swatch
Full Blooded Collection, Swatch


Results from Swatch Group, which makes some of the world's most expensive watches, added to evidence that consumers are increasingly willing to splash out on pricey items after months of holding back due to fears about job cuts and their dwindling savings.

PPR (PRTP.PA), Bulgari (BULG.MI) and Hermes (HRMS.PA) posted resurgent sales in the first half and the world's No.1 luxury group, LVMH (LVMH.PA), said it had seen a healthy recovery in watches and jewellery sales.

Swatch Group, which appointed Nayla Hayek as chairwoman in June after the death of her father and Swatch founder Nicolas Hayek, has weathered the economic downturn better than its peers, largely thanks to its strong position in the fast-growing Chinese market.

Greater China represents approximately 25 to 30 percent of the group's sales.

"We do not see what could keep us from achieving record sales and profit in 2010," Swatch Group Chief Executive Nick Hayek told Reuters in an interview, adding, however, volatile exchange rates and a high gold price remained a risk.

Net profit leapt 54.5 percent to 465 million Swiss francs ($435.4 million) on record gross sales of 3.03 billion francs.

"We have seen growth in all our markets. China continues to grow, of course, but Russia also grew strongly and steadily over the past years and the Middle East is back to a strong performance after a period of weakness in 2009," Hayek said.

Sales in the United States and Europe, except for Greece, also increased in the first half. "The U.S. will grow also in the second half, they have to catch up. I also expect strong growth in Western Europe," Hayek said, adding that the second half was generally better than the first half for Swatch Group.

Continued strong growth in July for watches across all segments and regions also boded well, Hayek said.

"A very strong set of figures driven by the watch division. While the company talks about growth being broad based I presume it was driven by the greater China region," Kepler Capital Markets' Jon Cox said.

AHEAD OF PEERS

Swatch Group's results showed a diversified brand portfolio, favourable geographic exposure and a broad distribution platform were key for success within the watch industry, Citi analyst Thomas Chauvet said in a note to clients.

The group, which is best known for its colourful plastic Swatch watches but also owns higher-end brands such as Breguet, Blancpain and Omega, said it would continue to expand its retail activities globally in the second half, but that it had to ease capacity bottlenecks in some production areas.

"Figures were clearly ahead of expectations, watches in particular were very strong with organic growth of 33 percent. The group is ahead of its peers and the Swiss watch export figures," Vontobel analyst Rene Weber said.

Swiss watch exports rose by 19.7 percent in the first six months of 2010.

At 1045 GMT, shares, which have already gained 25 percent so far this year, were up 3.1 percent at 337.60 francs, outperforming a 0.6 percent drop in the in the STOXX European personal and household goods index .SXQP.

Swatch Group is trading at 15.6 times estimated 2011 earnings, at a slight discount to Richemont (CFR.VX), which publishes a 5-month trading update on September 8, and LVMH.

The company, which often posts results ahead of the scheduled date, published the results two weeks earlier than the originally planned Aug. 18.

(Editing by David Cowell and Louise Heavens) ($1=1.068 Swiss francs)

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