Press release

Swatch Group: Comments on the first half of the year and outlook for 2004 as a whole

Biel-Bienne, August 24, 2004

• Continuous market share growth on the global watch market (Swatch Group + 13.7%; Federation of the Swiss Watch Industry FH + 10.8%)

• Significant increase in Group sales after six months (8.9% in local currency and 8.6% in Swiss francs)

Organic In CHF
Watches + 13,8 % + 13,7 %
Production - 2,3 % - 2,5 %
- of which third parties - 14,1 %
Electronic systems + 10,0 % + 10,0 %
Group as a whole + 8,9 % + 8,6 %

• Above-average increase in operating result of + 20.1 % and in net income of + 16.7 %, after taking account of additional marketing investments of around CHF 20 million for the Olympic Games.
• Substantial sales growth in the electronic systems area. Strong demand and easing of price pressure.
• Recovery in the production area felt over the past two months, and improved order book for second half of the year.
• Positive outlook for the second half of the year despite a difficult and challenging basis for comparison.

Key figures for the Group as a whole
In CHF millions
1st half2004
1st half 2003
% change
in local currency
in CHF
Gross sales
Operating result before depreciation & amortization (EBITDA)
- in % of gross sales
Operating result (EBIT)
- in % of gross sales
Net income
- in % of gross sales
Investment in tangible assets
Shareholders' equity, 30 June
4 029
3 691
Market capitalization, 30 June
10 039
7 491

Total unit sales: watches, movements,stepping motors (million units)

The Interim Consolidated Financial Statements are unaudited.


With a minimal negative currency influence, sales have risen by + 8.6% in the first half of the year. This large increase can be primarily attributed to the finished watches and electronic systems segments, both of which have recorded very sound growth.
Having already enjoyed a huge demand at the Basle International Watch and Jewelry Exhibition, watches in all categories continued to sell in large numbers in the subsequent months, therefore playing a key role in the substantial sales increase in this segment.
Despite relatively uncertain political circumstances, fears of further terrorist attacks, and an uncertain outlook for the Swiss franc, consumer behavior in Europe has stabilized and improved slightly, with larger growth being achieved in the US and Asia.
Group Management and the Board of Directors also remain confident with regard to the second half of the year – even though the strong second half year of 2003 means that the benchmark is a lot higher. In addition, the currency basis presents a greater challenge in the second half of 2003. Provided that the currency situation does deteriorate significantly and the world is largely spared of exogenous shocks, business can be expected to continue to develop quite positively.

1st half 2004
1st half 2003
% change
in local currency
in CHF
In CHF millions
Gross sales 1 440 1 267 13.8% 13.7%
Operating result before depreciation & amortization (EBITDA) 249 197 26.4%
- in % of gross sales 17.3% 15.5%
Operating result (EBIT) 225 175 28.6%

- in % of gross sales

The Interim Consolidated Financial Statements are unaudited.

15.6% 13.8%

Sales in the finished watch segment increased in the first half of 2004 compared to the previous year by + 13.8% in local currency and + 13.7% in Swiss francs. This sound growth compared to the export statistics of the Federation of the Swiss Watch Industry FH (+ 10.8%) confirms the fact that the Swatch Group has reinforced its position as market leader and has also increased its market share. Although growth spans all watch categories, the luxury and prestige segment is still the one that is expanding fastest. As already reported at an earlier stage, the number of orders received at this year’s Basle International Watch and Jewelry Exhibition is extremely positive and, despite a much higher yardstick for comparison in the second half of 2004, Management and the Board of Directors remain confident of being able to record further growth. The company’s expansion into new markets is continuing unabatedly and will be bolstered by product innovations, combined with a selective expansion of the retail strategy. In all watch segments, the company has set itself the clear aims of increasing sales and winning further market shares.
One of the challenges of the second half year will be to meet all the orders (in particular those from the Basle exhibition) and be able to deliver the products to customers at the right time. The investments, expansion and rationalization measures required for this in the production sector have been made.
In terms of the luxury and prestige brand segment, a specific mention should again be made of the Breguet brand, which continues to enjoy strong demand. However, the other brands in the luxury segment – for instance Blancpain, Glashütte, Jaquet Droz, Léon Hatot, and Omega – are also selling extremely well, meeting the Group management’s expectations, and are making their contribution to the company’s growth. Omega’s dynamic growth over the past few years is continuing unabatedly in practically all regions and countries. Rado and Longines are also exhibiting very strong growth.
In the middle range segment, things have again developed very positively with regard to Tissot and cK – the two best-selling brands – especially in connection with launching the cK jewelry collection. Nevertheless, brands such as Certina and Mido, which cater more to market niches, are also doing well. In the basic market segment, which faces the toughest competition from non-Swiss-made watches, the Swatch brand has held its ground well – although some regions have, of course, not enjoyed the same high growth rates recorded in other segments. The Olympic Games in Athens are drawing particular attention to the Swatch brand among an international public, leading us to be optimistic about the second half of the year.
In the second half of 2004, our direct presence in all markets worldwide is set to have further positive effects, as is demonstrated, for example, by Tokyo, where the Group purchased a property in an extremely prominent location at the end of June 2004.

1st half 2004
1st half 2003
% change
in local currency
in CHF
In CHF millions
Gross sales 634 650 -2.3% -2.5%
- of which to third parties 263 306 -14.1%
Operating result before depreciation & amortization (EBITDA) 75 87 -13.8%
- in % of gross sales 11.8% 13.4%

Operating result (EBIT)

18 27 -33.3%

- in % of gross sales

The Interim Consolidated Financial Statements are unaudited.

2.8% 4.2%

As already announced when the 2003 financial statements were presented, this segment did not fare as well in the first half of 2004 as the finished watches segment. The fact that third-party customers were very reluctant to place orders up to the beginning of May this year has caused sales to fall by - 14.1% compared to the same period the previous year, and the company has only partly been able to compensate for this up to mid-year.
However, the segment began to pick up in mid-May 2004 as predicted and the company has already been able to increase sales visibly from May to July.
As a result of the sales volume being down compared to last year, profitability has also suffered in this segment. The order books for the second half of the year are showing an upwards trend, which is set to give rise to higher sales figures and enhanced profitability.
Other capital expenditure and cost measures are underway and, with further targeted rationalization, it will be possible to further improve both sales and profits.
The second half year will also have a lot to live up to in this segment – especially in terms of earnings – as rationalization in 2003 predominantly took effect in this period. In terms of sales, in contrast, the decline in this segment was also primarily in the second half of 2003, which should make it somewhat easier to improve on last year’s figures.
Extremely positive effects have resulted from increasing improvements to capacity, quality, productivity, and costs of suppliers, combined with the development of new activities such as settings, jewelry, and other artistic hand-crafted work for luxury watches.

1st half 2004
1st half 2003
% change
in local currency
in CHF
In CHF millions
Gross sales 274 249 10.0% 10.0%
- of which to third parties 247 223 10.8%
Operating result before depreciation & amortization (EBITDA) 63 51 23.5%
- in % of gross sales 23% 20.5%
Operating result (EBIT) 39 30 30.0%
- in % of gross sales 14.2% 12.0%


The Interim Consolidated Financial Statements are unaudited.


The recovery that emerged in this segment over the last few months of the previous year also held up in the first half of 2004.
The much larger demand for niche products with very low power consumption, as well as for miniaturized products, has boosted sales in the segment.
Substantial increases were recorded in both sales and profitability, even though the interim financial statements took account of an impairment charge of nearly CHF 4 million on the lithium-ion project for rechargeable batteries. Thanks to the fact that demand is picking up and the pressure on prices has decreased slightly, a continuous upturn can be expected. The market has relaxed in terms of inventory levels, and, in fact there is actually a certain lack of components in several market areas.
The oscillator market has also recovered substantially in the watches and telecommunications sector. This is directly reflected in the sales of Micro Crystal, as well as Oscilloquartz, a company that had been fighting slumping sales for the last two years.
Although demand does not appear to be abating at present, the Group will also act very cost-consciously in this phase and look for additional optimization possibilities. This segment is extremely volatile, as has been seen in the last few years, and the Group wants to be well prepared for further large fluctuations.
EM Marin, with higher percentage sales to third parties (third-party revenues currently more than 58 %) than to Group companies, has continued its sound, constant growth. Deliveries to customers of EM Marin, in particular to companies from the automotive, vehicle, telecommunications, aircraft and computer industries, are continuing without interruption. EM Marin is one of three or four companies worldwide to manufacture low-voltage products with a low power consumption.

Estimates and assumptions
In this interim report, Management has not made any significant changes to the estimates and assumptions compared to the previous period.

Special elements
As already mentioned, the following elements influenced the interim financial statements as of 30 June 2004:
1. Purchase of a property in Tokyo for just under JPY 13 billion, financed in the short term with a local bridge loan (watch segment).
2. Impairment charge on the lithium-ion project for rechargeable batteries at Renata (electronic systems segment) totaling CHF 4 million.
3. Impairment charge on financial assets in accordance with the Group’s "Impairment Policy" totaling CHF 3 million.

Outstanding bonds
No bonds were issued in the period from January to June 2004. A 2.625% convertible bond of CHF 411.6 million issued by The Swatch Group Finance (Luxembourg) SA with a term from 2003-2010 is outstanding. The debt component reported under non-current liabilities amounts to CHF 390 million. No bonds were converted in the reporting period from January to June

Treasury shares / share buyback
In the first half of 2004, as part of the previously announced share buyback program, a total of 1,502,000 registered shares and 314,500 bearer shares were bought back via the second line of trade of virt-x. This corresponds to a volume of CHF 106

The company pays only one dividend per fiscal year. For fiscal year 2003, the divided agreed at the Annual General Meeting on 27 May 2004, with a value date of 2 June 2004, was distributed as follows:
Dividend per registered share CHF 0.29
Dividend per bearer share CHF 1.45
Corresponds to a total divided paid of Million CHF 84.5

Events after the closing date Upon

Upon printing this press release, the company is not aware of any significant new event that could affect the validity of the half-year figures as of the end of June 2004. As for the work conflict between two employees in Asia and the Swatch Group, the following comments should be made: the Swatch Group is an international corporation with 18 independently-managed brands and a large number of companies that manufacture components for both watches and other industries. In order to ensure that prices are fair all over the world, the global sale and distribution of these products needs to take account of and harmonize numerous highly complex parameters. These parameters include extreme exchange rate fluctuations, a variety of different VAT models, diverse import taxes that vary according to segment, category, and price, a wide variety of different sales and distribution structures, gray-market activities, all of which can change very quickly, and much more. With a view to taking account of and harmonizing this large number of factors, the Swatch Group regularly conducts studies and maintains contact with internal and external tax experts, as well as international and local tax authorities, with the goal of ensuring that the normal tax discussions, with numerous discretionary 13decisions, are conducted quickly and positively. All international companies and Swiss corporations conduct discussions with the tax authorities and the question of interpretation and judgment plays an important role in tax assessments. We have numerous concrete examples of cases in which tax officers have reached totally contradictory decisions for a particular case in the same country and even in the same region. Possible fluctuations relating to interpretation and judgment are allowed for in our provisions.

Contingent liabilities and contingent receivables
There have not been any significant changes to the Group’s contingent liabilities or contingent receivables since the approval of the consolidated financial statements for 2003..

Edgar Geiser, CFO, et Thomas Dürr, Corporate Treasurer
The Swatch Group AG, Biel-Bienne
Tél. +41 32 343 68 11, fax +41 32 343 69 16
e-mail :

Béatrice Howald, Head of PR/Press, Swatch Group
+41 32 343 68 33, Fax +41 32 343 69 22