Informations

 

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


 

Contents

Archives