Press release
21 August 2003
Swatch
Group:
commentary on the first half and prospects for the year 2003 as a whole.
Biel-Bienne, August 21,
2003
• Despite the strong Swiss franc, the trend in the first quarter of 2003
was positive. Sales in local currencies were +7 %, or –0.7 % in Swiss
francs. As at March 31, 2003, the operating result was 6.5% above the
figure for the same period last year.
• Second-quarter sales weakened as a result of exceptionally strong negative
factors such as SARS, sluggish consumer spending, the continuing strength
of the Swiss franc against all relevant currencies with the exception
of the euro, and the drop in worldwide tourism of –8.9 % in local currency
terms; the overall result was a decline in first-half sales of -1.3% compared
to the previous year (–6.6 % in Swiss francs). (Negative currency impact
in the first half of 2003, CHF 102 million).
• Decline in net income for the Group attributable to sales and currency
factors – 9.7 % to CHF 186 million (CHF 206 million prior year).
• Optimistic outlook for the second half of 2003, due to positive developments
in July. Recent reports from our own retail stores and other jewelers
confirm this positive trend in August, based on increasing visitor numbers
and sales.
Key figures
for the Group as a whole
|
1st half 2003 |
1st half 2002 |
Variance % |
In million CHF |
|
|
in local currency |
in CHF |
Gross sales |
1.816 |
1.944 |
-1.3% |
-6.6 % |
Operating result before
depreciation & amortization (EBITDA)
- as a percentage of gross sales
|
329
18.1%
|
373
19.2 %
|
|
-11.8 % |
Operating result (EBIT)
- as a percentage of gross sales
|
224
12.3% |
271
13.9 % |
|
-17.3 % |
Net income
- as a percentage of gross sales |
186
10.2% |
206
10.6 % |
|
-2.0 % |
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Investments in tangible assets
|
94 |
97 |
|
-3.1% |
Equity, end of June |
3.691 |
3.330 |
|
10.8% |
Market capitalization, end of June
Per register share
-Net income
-Equity, end of June
|
0.64
12.64 |
0.71
11.41 |
|
-9.9%
10.7% |
Per bearer share
-Net income
-Equity, end of June |
3.18
63.19 |
3.53
57.07 |
|
-9.9%
10.7% |
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Total unit sales: watches, movements,
stepping motors (million units) |
60.3 |
53.7 |
|
12.3% |
Commentary
After a
good start to the year 2003 – despite the strength of the Swiss franc
– strong sales growth of +7 % was achieved in the first quarter in local
currency, but this was neutralized in Swiss francs by monetary influences,
especially that of the US dollar and allied currencies. The operating
result for the first quarter was, in effect, slightly higher than in the
same period last year. However, subsequent months were sharply hit by
the adverse effects of the respiratory illness SARS, the decline in travel,
warfare, and general weakening in consumer spending. Combined with the
slightly less marked, but still negative monetary influences in the second
quarter (CHF 102 million in the first half alone, after CHF 70 million
for the first half of 2002 in comparison to 2001 and CHF 166 million for
the full year 2002 were already reported), an exceptional decline in sales
amounting to CHF 128 million or -6.6 % was reported in the first half
as compared to the same period in the previous year.
These factors, and their sudden impact on sales could not have been planned,
and the resulting margin shortfall could not be offset immediately by
cost-cutting measures. In addition, the Group did not wish to cut costs
either in the marketing area or in research and development. Moreover,
despite massive exchange losses, local price increases were practically
never made, except in a few isolated cases and with great reluctance,
i.e. on less than 2% of sales. Active presence in all markets and our
close proximity to our customers enabled us to gain additional market
share in this difficult environment.
However, in comparison with the same period last year, the operating result
declined -17.3 % to CHF 224 million. Net income for the Group was down
-9.7 % at CHF 186 million, due to improvement in the financial result.
The normalization and even improvement in business observed in many markets,
together with the slow recovery of travel and tourism, brought increased
sales in July in local currencies, and the same level overall in comparison
to the previous year in Swiss francs. Despite persistent weakness in consumer
spending in several European countries, this encourages us to take an
optimistic view of the second half of 2003. Assuming that exchange rates
remain within the present bandwidth, the negative currency influence amounting
to a total of CHF 102 million observed in the first half is likely to
level off further in the second half. Continuous efforts on the cost side
will have an even greater impact in the second half of the year. The Group’s
long-term expansion plans are therefore not called into question in any
way.
The Board of Directors and Group Management are confident that the Group
has strengthened its leading position in the watch market, even under
difficult conditions and confronted with unforeseeable factors, and will
further extend this position with a positive second semester.
RESTATEMENT
OF THE SEGMENTS
To better
accomodate the products and markets of Microcomponents and Omega Electronics
within Group structures, these two companies have been transferred from
«Production of Watches, Movements and Components» to the «Electronic Systems»
segment. The resulting changes for the two business areas, accompanied
by comparative prior year figures, are shown below. Figures for sales
and results at Group level remain unchanged.
PRODUCTION
OF WATCHES, MOVEMENTS AND COMPONENTS
|
1st half of 2002
(Restated in 2003) |
1st half of 2002
(Published in 2002) |
Evolution |
In million CHF |
|
|
in CHF |
in % CHF |
Gross sales
-of which to third parties |
643
318 |
700
386 |
-57
-68 |
-8.1%
-17.6% |
Operating result before
depreciation & amortization (EBITDA)
- as a percentage of gross sales
|
98
15.2 %
|
105
15.0 %
|
-7 |
-6.7 % |
Operating result (EBIT)
- as a percentage of gross sales
|
38
5.9 % |
43
6.1 % |
-5 |
-11.6 % |
ELECTRONIC
SYSTEMS
|
1st half of 2002
(Restated in 2003) |
1st half of 2002
(Published in 2002) |
Evolution |
In million CHF |
|
|
in CHF |
in % CHF |
Gross sales
-of which to third parties |
259
232 |
190
164 |
69
68 |
36.3%
41.5% |
Operating result before depreciation & amortization
(EBITDA)
- as a percentage of gross sales |
54
20.8% |
47
24.7%
|
7 |
14.9% |
Operating result (EBIT)
- as a percentage of gross sales |
36
13.9% |
31
16.3% |
5 |
16.1% |
WATCHES
|
1st half 2003
|
1st half 2002
|
Varience % |
In million CHF |
|
|
en monnaies locales |
en CHF |
Gross sales |
1267
|
1380
|
-1.7%
|
-8.2% |
Operating result before
depreciation & amortization (EBITDA)
- as a percentage of gross sales
|
197
15.5 %
|
231
16.7 %
|
|
-14.7 % |
Operating result (EBIT)
- as a percentage of gross sales
|
175
13.8 % |
209
15.1 % |
|
-16.3 % |
Sales in
local currency terms were down -1.7% in the first half of 2003 against
the same period last year; this brought an overall decline of -8.2%, taking
into account currency losses of -6.5 % in Swiss francs (negative currency
impact CHF 90 million).
As far as the individual brands are concerned, further organic growth
of the prestige and luxury market segment can be obeserved, with Breguet
once again reporting impressively strong gains. However, this should not
be allowed to detract from, or leave unacknowledged, the favourable development
achieved by other brands belonging to the Swatch Group, namely Omega,
Blancpain and Glashütte. In the upper market segment, particularly Rado
registered declining sales in German-speaking regions and other important
markets.
The middle market segment showed a positive trend, especially with Tissot
and cK. In the basic market segment, Swatch was hit in the months of May
and June by a drop in tourism and negative monetary influences. This was
apparent at airports such as Zurich, London and Milan and also, for instance,
on the Via Montenapoleone in Milan, Champs-Elysées in Paris and Times
Square, New York. The temporary but strong adverse influences in the regions
hit by SARS were yet another difficulty. As planned, the private label
business underwent further downsizing.
Following organic growth in the early months of the year, weaker business
was particularly marked in the second quarter. These short-term declines
and the resulting lower margins, as well as retention of our substantial
marketing, research and development expenditure, led to a decrease in
the operating result of -16.3 % to CHF 175 million, even though cost control
was treated as a matter of the utmost priority.
Despite adverse circumstances and difficulties in many regions of continental
Europe, where depressed consumer sentiment continued to spread, growth
opportunities were apparent both in important markets with continuous
economic advancement as well as in new markets in which our expansion
and development activities now focus. New growth will require the launch
of various new products which the Swatch Group has already prepared; it
also depends on the absence of additional negative factors, including
any further substantial gain in the value of the Swiss franc.
PRODUCTION
OF WATCHES, MOVEMENTS AND COMPONENTS
|
1st half 2003
|
1st half 2002
|
Variance % |
In million CHF |
|
|
in local currency |
in CHF |
Gross sales
-of which to third parties |
650
306
|
643
318 |
2.3%
|
1.1%
-3.8% |
Operating result before
depreciation & amortization (EBITDA)
- as a percentage of gross sales
|
87
13.4 %
|
98
15.2 %
|
|
-14.7 % |
Operating result (EBIT)
- as a percentage of gross sales
|
27
4.2 % |
38
5.9 % |
|
-28.9 % |
The decline
in sales of movements and components to third parties was more than offset
by higher orders placed within the Group. A negative monetary influence
was observed on sales of watch movements in the low-end price category
produced in the Far East and sold in Hong Kong; in this segment, the sustained
pressure on prices was offset by the production of a new and more economical
modern quartz movement version. Among the mechanical movements, the decline
in sales of movement blanks (ébauches) was more than compensated by an
increase in fully-assembled movements. Swiss-made quartz movements also
reported growth. Third-party sales trends in the second half of the year
for movements and components are difficult to estimate.
Substantial investments to modernize and enhance product diversity have
been approved and these, together with structural and process improvements,
will enable further cost optimization to be achieved. Turning to our production
facilities in the high price segment, all existing capacities are currently
undergoing an optimization analysis in order to create the best possible
conditions for the expansion and investment measures which will be necessary
in future.
ELECTRONIC
SYSTEMS
|
1st half 2003
|
1st half 2002
|
Variance % |
In million CHF |
|
|
en monnaies locales |
en CHF |
Gross sales
-of which to third parties |
249
223
|
259
232 |
-2.7%
|
-3.9%
-3.9% |
Operating result before depreciation & amortization
(EBITDA)
- as a percentage of gross sales |
51
20.5 %
|
54
20.8 %
|
|
-5.6 % |
Operating result (EBIT)
- as a percentage of gross sales |
30
12.0 % |
36
13.9 % |
|
-16.7% |
Declining sales are directly related to the trends in the markets served
by the different companies. Lasag was affected by declining industrial
investments; so too was Oscilloquartz in respect of sales to Telecom companies
which are, in some cases, operated by state-owned organizations. At Microcrystal,
good use of production capacity is still being made, but with sustained
pressure on prices. The Microcomponents organizational unit which is now
allocated to this division was able to report a pleasing growth of business
in stepping motors. Renata responded to growing pressure on costs by outsourcing
battery packaging to the Far East. EM Marin reports a higher order backlog
and is also benefiting from the acquisition of Sokymat, which did not,
however, have any significant influence on the consolidated figures for
the division.
A modest improvement in these business areas looks likely in the coming
months.
Net financial result
The net financial result at the end of June 2003 compared to last year
shows a positive trend due to a marked reduction in exchange losses.
Outstanding bonds
No bonds were issued during the period January to June 2003.
Treasury shares
A total of 33,639 registered shares and 0 bearer shares were sold in the
first half of 2003.
Basic earnings per share were calculated by dividing the net result for
the period by the number of outstanding shares. Proprietary shares held
by the Group are not included. This concerns as of 30.06.2003: 12,354,890
registered shares and 44,000 bearer shares; as of 31.12.2002: 12,388,529
registered shares and 44,000 bearer shares.
Given the absence of any convertible loan, diluted earnings per share
are identical to basic earnings per share.
Dividend
The company pays one single dividend for each financial year. For the
year 2002, the following dividend was paid out on June 3, 2003, pursuant
to the decision taken at the Ordinary General Meeting of May 28, 2003,
i.e.:
Dividend per registered share CHF 0.22
Dividend per bearer share CHF 1.10
Representing a total of CHF CHF million 64.2
Post balance sheet events
No significant new event likely to modify the valuation of the financial
statements at the end of June 2003 was indicated at the time the text
for this report was finalized.
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
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