Swatch Group’s first half showed positive results in sales and an increase in operating margin. It managed to pursue macro strategies of sustained investment in innovation, both in product development and in production and selective expansion of its own retail network including E-Commerce.
The long-term Group strategy and philosophy to keep its personnel employed, despite lower sales in Production, and to invest in the production base Switzerland, remain deliberately unchanged. This allows quick reaction to the noticeable increase in demand for watches and jewelry, which has been observed since last autumn.
Development in the segments and countries
Sales performance in Watches & Jewelry was very positive, although it was dampened by the ongoing unfavorable exchange rate situation and lower Production sales to third parties. The entire segment achieved net sales of CHF 3 576 million. Compared to the previous year, this is a decrease of 0.3% at current exchange rates, however, an increase of 1.2% at constant rates.
Sales performance in local currency varied, depending on the region. Mainland China recorded significant growth. Sales in Hong Kong have stabilized. Japan showed a mixed picture. Sales to local consumers were very positive, while sales to Chinese tourists decreased due to the negative currency situation. Swatch Group recorded very positive sales in the Middle East. In Europe, sales of the brands increased compared to the first half of the previous year, this in Great Britain, Spain, Italy, and also again in Switzerland. The North American markets showed growth in local currencies, especially in the Group’s own retail.
Production, which is integrated into the Watches & Jewelry segment, recorded lower capacity utilization than in the prior-year comparative period. Particularly third-party brands are very insecure and delay orders. Conversely, Group brands increased orders compared to the previous year. Production of certain components, particularly watch cases, was again ramped up. Also, integrated gold production, from foundry to production of semi-finished goods, was centralized in one production site in Switzerland, which not only led to synergies but also optimized the entire production flow.
The Electronic Systems segment generated net sales of CHF 133 million in the first half of the year, corresponding to a slight decrease of 2.2%. Sales are very sensitive to the strength of the Swiss franc versus the USD and JPY, which did not favor this industrial area in the first half of the year. It can be stated that industry could not compensate for the Swiss franc shock. The operating profit in the Electronic Systems segment closed at break even.
Group Key Developments – Watches
The Omega Speedmaster, now celebrating its 60th anniversary, is and remains an absolute bestseller. The “Speedy Tuesday”, launched in January, was sold out online in approximately four hours.
Swatch ensured good revenue with the launch of the New Skin, Swatch X You and Sistem51 Irony. The first editions of the Longines Master Collection Blue and the Tissot Ballade Silicium and T-race Cycling ensured high volumes.
Particularly in the Prestige and Luxury segment, new products accelerated growth into the high double digits. Harry Winston grew not only with its high jewelry collections Lotus Cluster, Art Deco and Sunflower, but also with its new most exclusive watch models such as the Midnight Date Moon Phase.
Ladies Watches and the “Smaller Sized timepiece” product segment
Breguet was successful with its new ladies’ watches Tradition and Phase de Lune, and Blancpain with the Villeret and Bathyscaphe collections.
In the second half of the year, Omega will launch new products such as the Seamaster Planet Ocean Big Blue, the Speedmaster Racing Co-Axial Chronometer and the Speedmaster 38 mm Collection onto the market. Blancpain with the new Bathyscaphe 38 mm and the Villeret 6104 ladies’ watch. Together with the new Harry Winston collections, the entire Prestige and Luxury brand sector will further accelerate growth in the second half of the year.
Longines will cause a sensation and add further momentum with the Conquest V.H.P. (very high precision quartz movement with an almost infinite calender), as well as Tissot, with the launch of the Chrono XL NBA and Every Time Swissmatic.
In a bid to gain market share in the digital payments scene, Swatch launched the unique Swatch Pay with its full credit card function in Shanghai, in partnership with UnionPay and 11 Chinese banks. Watch the video below or visit here for more details.
- Group net sales, +1.2% at constant exchange rates, of CHF 3 759 million, or CHF 3 705 million, -0.3% at current exchange rates.
- Sales growth of +2.9% at constant rates in the Watches & Jewelry segment (excluding Production). Sales for the whole segment, including Production +1.2%, adversely affected by low Production sales to third parties.
- Operating margin in the Watches & Jewelry segment (excluding Production) increases by almost 25%, from 10.7% to 13.2%, despite negative currency impact. Which means that for every dollar of sales in the segment, the company made 13 cents.
- Operating result increases by 5.1% to CHF 371 million, despite retention of production capacities for third parties and workforce. Operating margin grows from 9.5% in the previous year to 10.0%.
- Net income increases by 6.8% to CHF 281 million with a net margin of 7.6% (previous year: 7.1%).
- Accelerated growth of all brands in local currency in June and the first weeks of July, most pronounced in the Prestige and Luxury segment. The retained production capacities allow quick response to the positive development.
- Strong growth in local currency in the Group’s own retail network.
- Positive outlook for the second half of 2017 with many new product launches. Good development in Production, which will mainly profit from the growth of the own brands, not only in value but also in volumes.