Press release

Swatch Group Sales 2003 – Strong 2nd half 2003

Biel, February 5, 2004

Overview of the whole Group

In the difficult year 2003, the Swatch Group once again succeeded in consolidating its leading position and winning new market share. As was already the case in the previous year, the Group again faced major challenges in 2003.
Events like the war in Iraq, SARS, the decline in tourism and reserved consumer sentiment were just some of the problem areas with which the global economy, and hence also the Swatch Group, had to contend.
After very strong sales figures in the first quarter of 2003, the watch industry was also hit hard in the second quarter and suffered significant sales losses. Progressive improvement of the situation in the second half enabled the shortfall against 2002 reported at mid-year to be largely made good again.
Currency rates had a negative impact of CHF –143 million or –3.52% on sales in 2003, after currency-related losses of CHF 166 million (–3.97%) in 2002; in other words for the two years, this setback represented a total figure of CHF 309 million.
The slight recovery of the world economy and some improvement in consumer sentiment give reason to hope that good sales growth in Swiss francs will be achieved this year.

Restatement of the segments

To take better account of the products and markets of the Microcomponents and Omega Electronics companies within Group structures, these two businesses were transferred from the «Watch, Watch Movements and Component Production Division» to the «Electronic Systems» segment. The resulting prior-year changes are shown below for both divisions. At Group level, sales and results are not

Production of Watches, Movements and Components

Electronic Systems

These changes have already been taken into account in the following commentaries on the divisions.

Watches

Our strategy of avoiding short-term price increases due to currency fluctuations has successfully helped us to gain market share. Once again the trend of sales of the individual brands was positive. Brands such as Swatch and Rado which were particularly hard-hit in the first half of the year gained ground in the second half.
Luxury brands reported the strongest growth, especially Breguet, which exceeded the published or estimated growth rates of all other luxury brands.
Blancpain, Glashütte, Jaquet Droz and Léon Hatot all reported good growth.
The dynamic of Omega has been sustained. On all the important major markets, Omega has gained market share against its direct competitors and achieved good growth in local currency terms, although it did incur currency losses on the most successful markets. The medium-range segment also reported very attractive growth. In this segment, particular mention should be made of the Tissot brand which has achieved record sales throughout these years of economic difficulty. cK remains the number one by far among fashion designer watches and is the only Swiss made timepiece in this segment.
A regional review shows many parallels with the year 2002: sustained subdued sentiment in parts of Europe and an uninterrupted dynamic in the Asian countries (apart from the SARS period) together with the USA, the Eastern European markets and the Middle East. However, recent months have also seen a significant improvement of sentiment in many parts of Europe.

Watch, watch movement and component production

The decline in sales is a consequence of more cautious ordering of watch movements and components, especially by third party customers of the watch industry; this downturn in orders was more marked in the second half. It is explained by the sales situation in the first half for which the causes are well known. The decline of internal deliveries must be seen from the angle of continuous and intensive efforts to further optimise stocks at every level. In addition, sales in value terms were also reduced by currency-related pressure on prices for movements produced and sold in the Far East in the lowest price category.

Electronic systems

In the field of electronic systems, demand recovered in the second half of 2003, in line with expectations. Recent months have seen a substantial revitalisation in every area of this particular segment. Market forecasts for chips and quartz show significant growth for subsequent years from which Group member companies should also benefit.
In this segment also, market share could be slightly increased, thanks to a successful niche policy. The two largest companies, EM Microelectronic-Marin S.A. and Micro Crystal, were able to either slightly increase their sales in Swiss francs or maintain their high level of sales, despite sustained pressure on prices and currency losses.

Profit forecast 2003 and initial outlook for 2004

Because of the 2003 sales figures, the action taken to cut costs and accelerated growth in the second half of the year, the Board of Directors and the Group Management Board are confident that they will be able to present satisfactory operating and Group result figures on March 25, 2004, even against the background of a strong Swiss franc.
The Group continues to enjoy an extremely strong financial position and generates a highly respectable cash flow which, in conjunction with world-renowned brands and the strong industrial base, will permit further expansion of the Group.
Despite sustained problems and uncertainties on the world market, the Swatch Group recognises significant possibilities for further expanding its position and will mobilise all its forces to achieve the set objectives and expectations.
However, events beyond our control, a further massive increase in the value of the Swiss franc against our main currencies and other external influences and their possible impact on the Swatch Group cannot be fully allowed for in our plans.

5Profit forecast 2003 and initial outlook for 2004 Because of the 2003 sales figures, the action taken to cut costs and accelerated growth in the second half of the year, the Board of Directors and the Group Management Board are confident that they will be able to present satisfactory operating and Group result figures on March 25, 2004, even against the background of a strong Swiss franc. The Group continues to enjoy an extremely strong financial position and generates a highly respectable cash flow which, in conjunction with world-renowned brands and the strong industrial base, will permit further expansion of the Group. Despite sustained problems and uncertainties on the world market, the Swatch Group recognises significant possibilities for further expanding its position and will mobilise all its forces to achieve the set objectives and expectations. However, events beyond our control, a further massive increase in the value of the Swiss franc against our main currencies and other external influences and their possible impact on the Swatch Group cannot be fully allowed for in our plans.

Communication policy

Now that the SWX has completed its preliminary investigation and reported that the Swatch Group did not infringe upon the rules on ad hoc publicity, in the interests of transparency, the Group will revert to its open, spontaneous and, in exceptional cases, unconventional communication policy with analysts and investors within a clearly-defined framework compliant with stock market rules. This return to our new, “old” communication policy will take effect immediately.
The final results for the year 2003 will be published on March 25, 2004. A telephone conference of financial analysts is planned for that day.

Contacts

Edgar Geiser, CFO, et Thomas Dürr, Corporate Treasurer
The Swatch Group SA, Biel-Bienne
Tél. : +41 32 343 68 11, Fax +41 32 343 69 16
e-mail : investor.relations@swatchgroup.com

Béatrice Howald, PR & Press Office
The Swatch Group SA, Biel-Bienne
Tél. : +42 32 343 68 33, Fax +41 32 343 69 22
e-mail : presse@swatchgroup.co