Press release
SWATCH
GROUP:
COMMENTS ON THE FIRST HALF OF THE YEAR AND OUTLOOK FOR 2005 AS A WHOLE
BIEL/BIENNE,
24 AUGUST 2005
• Marked
rise in Group sales despite high basis for comparison with the previous
year and continued negative currency influences.
• Increase in operating result to CHF 299 million before and CHF 293 million
(+9.3%) after extraordinary items respectively.
• Above-average increase to CHF 267 million (+21.4%) in Group net income,
due to a strong financial result.
• Growth in sales of high-end watches significantly higher than the statistics
published by the Fédération Horlogère.
• Sharp rise in sales in the watches, movements and components production
segment.
• Slight decline in electronic systems, but clear indications of recovery
in June.
Growth in gross sales |
Organic |
In
CHF |
Watches |
+ 8.9
% |
+7.2
% |
Watch
Production |
+7.3
% |
+7.0
% |
Electronic systems |
-3.7
% |
-4.0
% |
Total Group |
+ 7.5
% |
+ 6.1
% |
Positive
outlook for the second half-year and 2005 as a whole.
Key figures for the Group as
a whole
|
In
CHF millions |
1st
half 2005
|
1st
half 2004 Restated
|
%
change
|
|
|
|
in
local currency
|
in
CHF
|
Gross
sales |
2075
|
1955
|
7.5%
|
6.1%
|
Net sales |
1980
|
1876
|
5.5%
|
Operating
result (EBIT) |
293
|
268
|
9.3%
|
-
in % of gross sales |
12.9%
|
13.7%
|
|
Net
income |
267
|
220
|
9.3%
|
-
in % of gross sales |
12.9%
|
11.3%
|
|
|
|
|
|
Investment
in tangible assets |
71
|
225
|
-68.4%
|
Shareholders'
equity, 30 June |
4
484
|
4
042
|
10.9%
|
Market
capitalization, 30 June |
10
996
|
10
039
|
9.5%
|
|
|
|
|
Total unit
sales: watches, movements,stepping motors (million units)
The gradual reduction in the production of movements in the lowest
price bracket will result in a further drop in total unit sales.
The Interim
Consolidated Financial Statements are unaudited.
|
59.4
|
61
|
-2.6%
|
Comment
Group gross sales in the first half-year rose organically by +7.5% and,
adjusted for currency fluctuations, by +6.1% in Swiss francs. Currency
movements in the period under review had a negative impact of –1.4%.
Despite a high basis of comparison with the previous year, the Group achieved
a significant increase in sales during the first half-year.
Demand appears to continue unabated, particularly for watches in the upper
price bracket. This trend was clearly in evidence at the World Watch and
Jewellery Show in Basle as well as in subsequent months.
The movements sector also recorded strong growth on a par with the watches
segment, following the previous-year decline in sales which was primarily
attributable to high inventories held by third-party purchasers.
The Executive Group Management Board and the Board of Directors are very
confident with regard to the second half of the current year.
Provided currency relations remain stable, the negative impact on the
full-year results could level off further, giving rise to the possibility
of a new record high for Group sales.
Excluding the impact of external factors such as exogenous shocks or radical
shifts in currency markets over which the Group has no influence, the
Executive Group Management Board anticipates continued positive business
development.
WATCHES
|
|
1st half 2005
|
1st half 2004 Restated
|
% change
|
|
|
|
in local currency
|
in CHF
|
In
CHF millions |
|
|
|
|
Gross
sales |
1 548 |
1 444 |
8.9% |
7.2% |
Net sales |
1 473 |
1 384 |
|
6.4% |
Operating
result (EBIT) |
241 |
225 |
|
7.1% |
- in % of
gross sales
The Interim
Consolidated Financial Statements are unaudited.
|
15.6% |
15.6% |
|
|
Gross sales in the finished watches segment rose in the first half of
2005 by 8.9% in local currencies and by 7.2% in Swiss francs. High growth
in the range of watches in the upper price category is clearly indicative
of further market share gains in this segment.
As expected, the other watch brands are not experiencing the same dynamic
as the prestige brands. They have, however, performed well in their respective
markets and sales in July and August show a clear upward trend.
Based on the highly positive volume of orders generated at this year’s
World Watch and Jewellery Show, coupled with an ongoing recovery in consumer
spending, Group Management are highly confident with regard to the second
half of 2005. Efforts to gain additional market shares, expansion plans
in Japan, the USA, China and the Middle East, as well as further selective
expansion of a retail market presence, will pose major challenges to the
Group.
Sales in Asian countries, in particular in China, Hong Kong, Japan and
Taiwan, continue to record the strongest growth. However, solid growth
has also been registered in the United States, while sales in Europe have
grown only in individual regions.
Nevertheless, there are visible signs of growth in consumer demand in
Europe, which should positively impact sales in the second half of 2005.
PRODUCTION OF WATCHES, WATCH MOVEMENTS AND
COMPONENTS
|
|
1st half 2005
|
1st half 2004 Restated
|
% change
|
|
|
|
in local currency
|
in CHF
|
In
CHF millions |
|
|
|
|
Gross
sales |
659 |
616 |
7.3% |
7.0% |
- of which to third parties |
277 |
260 |
|
6.5% |
Net sales |
622 |
575 |
|
8.2% |
-
of which to third parties |
260 |
244 |
|
6.6% |
Operating result (EBIT)
|
29 |
17 |
|
70.6% |
- in % of
gross sales
The Interim
Consolidated Financial Statements are unaudited.
|
4.4% |
2.8% |
|
At +7.0%, growth in gross sales of watches, movements and components
was significantly higher than the previous-year period.
Intercompany orders as well as orders for third parties rose in the period
under review.
The inventory situation among third-party purchasers has largely returned
to normal, and there is a healthy order backlog for the remainder of 2005.
It should be noted that the basis of comparison for the second halfyear
will be much more challenging. Nevertheless, solid performance is also
expected to continue in this area, in line with developments in the finished
watches segment.
A further shift in the product mix towards mechanical movements will also
have a positive impact on the profitability of these business activities.
The rationalization measures in Malaysia for movements in the lowest price
category, announced in the press release dated 13 May 2005, coupled with
the closure of ETA Uhrwerke in Germany, resulted in severance payments
in the order of CHF 6 million. These are nonrecurring costs which negatively
impact the result for the end of June 2005 by this amount.
At present, it is impossible to obtain a reliable estimate of potential
impairments in respect of machines which have fallen out of use as a result
of these measures; any such impairment, however, should not exceed the
one-digit million mark.
Conversely, the implemented measures will have a positive future impact
now that a loss-making activity will be eliminated, and significant cuts
in personnel expenses will result.
ELECTRONIC SYSTEMS
|
|
1st half 2005
|
1st half 2004 Restated
|
% change
|
|
|
|
in local currency
|
in CHF
|
In
CHF millions |
|
|
|
|
Gross
sales |
263 |
274 |
-3.7% |
-4.0% |
- of which to third parties |
247 |
247 |
|
0.0% |
Net sales |
260 |
270 |
|
-3.7% |
of
which to third parties |
244 |
243 |
|
0.4% |
Operating result (EBIT) |
34 |
39 |
|
-12.8% |
-
in % of gross sales |
12.9% |
14.2% |
|
|
The Interim
Consolidated Financial Statements are unaudited.
|
|
|
|
|
In the first half of 2005, the electronic systems segment posted a 4.0%
drop in gross sales.
This weaker performance was largely due to a relatively high basis of
comparison with the previous year as well as strong pressure on prices
for individual components. This trend for early 2005 was forecast at the
presentation of the 2004 results and has now been confirmed.
Since June, however, this segment has already experienced a significant
recovery in orders for the semiconductor industry and for other components,
which should be consolidated over the next few months.
The ever-shorter cycles with which this branch of industry is confronted
make it difficult to provide any clear outlook. However, the Group continues
to operate in this segment on the basis of a highly challenging operating
margin which can unquestionably be expanded on the strength of growing
volumes. The basis of comparison for the second half-year is lower, and
the significantly more upbeat mood in the market provides grounds for
anticipation of a good year-end result
Presentational changes
Timekeeping activities
As already published in the Annual Report 2004, timekeeping is not considered
as a core activity of the Group. Third party income from this activity,
which amounted to CHF 18 million in the first half of 2004, has been reclassified
from «Gross sales» to «Other operating income».
Restatement of the segments
In 2004, the company Nouvelle Lémania SA was merged with Montres Breguet
SA. As of 1 January 2005 the activity of Nouvelle Lémania SA is no longer
consolidated within the watch production segment but is now part of the
watch segment. The resulting prioryear changes do not have a material
impact on the operating profit of the segments. At Group level, sales
and results are not affected by this restatement.
Change in the number of consolidated companies
There is no major change in the number of consolidated companies in the
first half of 2005, and no material financial impact on the published
interim results.
2. Segment information by activity sector
in CHF millions |
1st half 2005
|
1st half 2004 Restated
|
Gross sales |
Third
|
Group
|
Total
|
Third
|
Group
|
Total
|
Watches |
1548
|
0
|
1548
|
1443
|
1
|
1444
|
Production of watches, movements and components |
277
|
382
|
659
|
260
|
356
|
616
|
Electronic systems |
247
|
16
|
263
|
247
|
27
|
274
|
General services |
3
|
1
|
4
|
5
|
1
|
6
|
Consolidation |
|
-399
|
-399
|
|
-385
|
-385
|
Total |
2075
|
0
|
2075
|
1955
|
0
|
1955
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
Watches |
1473
|
0
|
1473
|
1384
|
0
|
1384
|
Production of watches, movements and components |
260
|
362
|
622
|
244
|
331
|
575
|
Electronic systems |
244
|
16
|
260
|
243
|
27
|
270
|
General services |
3
|
1
|
4
|
5
|
1
|
6
|
Consolidation |
|
-379
|
-379
|
|
-359
|
-359
|
Total |
1980
|
0
|
1980
|
1876
|
0
|
1876
|
|
|
|
|
|
|
|
Operating result (EBIT) |
|
in % of sales
|
in % of total
|
|
in % of sales
|
in % oftotal
|
Watches |
241
|
15,6%
|
82,3%
|
225
|
15,6%
|
84.0%
|
Production of watches, movements and components |
29
|
4,4%
|
9,9%
|
17
|
2,8%
|
6,3%
|
Electronic systems |
34
|
12,9%
|
11,6%
|
39
|
14,2%
|
14,6%
|
General services |
-11
|
-275%
|
-3,8%
|
-13
|
-216,7%
|
-4,9%
|
Total |
293
|
14,1%
|
100.0%
|
268
|
13,7%
|
-4,9%
|
The Interim Consolidated Financial Statements are unaudited. |
|
|
|
|
|
|
3. Special elements
As already mentioned, the interim financial statements at 30 June
2005 include non-recurring costs totalling CHF 6 million for termination
pay in connection with staff reductions in Malaysia and Germany (Watch
Production segment).
4. Treasury shares / share buyback
Under the completed share repurchase program, which ran from 14 May 2004
to 31 December 2004, 449 500 bearer shares and 2 140 000 registered shares
were repurchased by the Swatch Group. According to the capital reduction
decision by Swatch Group’s General Meeting held on 18 May 2005, share
capital will be reduced during the second half of the year and the repurchased
shares cancelled, in accordance with normal legal procedures.
As announced on the occasion of the publication of the 2004 business results,
a new buyback program commenced on 1 July 2005 and will only influence
the financial statements of the Group in the second half of 2005.
5. Dividend
The company pays only one dividend per fiscal year. For fiscal year 2004,
the dividend agreed at the Annual General Meeting on 18 May 2005, with
a value date of 23 May 2005, was distributed as follows:
Dividend per registered share CHF 0.35
Dividend per bearer share CHF 1.75
Corresponds to a total dividend paid of CHF million 101
6. Contingent assets and contingent liabilities
There have not been any significant changes to the Group’s contingent
assets or contingent liabilities since the approval of the consolidated
financial statements for 2004.
7. Events after the closing date
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 2005.
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
|