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 |
1973
|
1816
|
8.9%
|
8.6%
|
Operating
result before depreciation & amortization (EBITDA) |
379
|
329
|
15.2%
|
-
in % of gross sales |
19.2%
|
18.1%
|
|
Operating
result (EBIT) |
269
|
224
|
20.1%
|
-
in % of gross sales |
13.6%
|
12.3%
|
|
Net
income |
217
|
186
|
16.7%
|
-
in % of gross sales |
11.0%
|
10.2%
|
|
|
|
|
|
Investment
in tangible assets |
225
|
94
|
139.4%
|
Shareholders'
equity, 30 June |
4
029
|
3
691
|
9.2%
|
Market
capitalization, 30 June |
10
039
|
7
491
|
34.0%
|
|
|
|
|
Total unit
sales: watches, movements,stepping motors (million units)
The Interim
Consolidated Financial Statements are unaudited.
|
61.0
|
60.3
|
1.2%
|
Comment
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.
WATCHES
|
|
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.
PRODUCTION OF WATCHES, WATCH MOVEMENTS AND
COMPONENTS
|
|
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.
ELECTRONIC SYSTEMS
|
|
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
Dividend
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..
Contacts
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 : investor.relations@swatchgroup.com
Béatrice
Howald, Head of PR/Press, Swatch Group
+41 32 343 68 33, Fax +41 32 343 69 22
E-mail: press@swatchgroup.com
|