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Margins fall to their lowest in decades

  • 02 Feb 17

Unlike rival Richemont which posted pretty good growth in the last quarter, Swatch confirmed once again the deteriorating momentum in the watch industry. A slight recovery in the last two months mitigated the downfall in H2 to 9.9% (CHF3,837m). Full-year sales were down 10.8% at constant exchange rates (-10.6% reported) to CHF7,553m. The core business of Watches & Jewellery (97% of sales) dropped by 10.7% to reach CHF7,305m. The weak momentum was experienced in Europe apart from the UK which benefited from higher tourist inflows lured by the devalued pound. France, Belgium and Germany were hit by terrorist threats, while Switzerland struggled from a strengthening CHF. Asian countries have performed better with strong growth in major markets, except for Hong Kong where the situation has normalised according to management. Oddly, Swiss watch exports to Hong Kong fell by 15.7% in December. In the Americas, the central countries posted positive growth although the northern markets were hit by the slump in demand. Margins have slightly improved in H2 thanks to strengthening momentum in Mainland China in the last quarter. The operating margin was up to 11.8% in H2 vs. 9.5% in H1. The full-year operating profit almost halved (-44.5%) to CHF805m, equivalent to an operating margin of 10.7% vs. 17.17% a year earlier. Watches & Jewellery activities generated an operating profit of CHF894m (-41.9%), i.e. an operating margin of 12.2% compared to 18.8% in 2015. Net income amounted to CHF593m (-47%). Investments amounted to CHF563m, equivalent to 7.5% of net sales. Inventories stood unchanged at CHF6.259m. Gross cash was slightly lower at CHF1,136m vs CHF1,280m in 2015. The proposed dividend retreated to CHF6.75 per bearer share and CHF1.35 per registered share. The company is bullish on the 2017 outlook on the back of the positive signs in the last quarter.

The watches are turning backward

  • 10 Mar 16

Swatch FY15 sales struggled in the weakening worldwide demand for the Swiss watches as well as the strengthening CHF. In fact, revenues decreased by 0.9% on a lfl basis, while the currency impact was -2.1%. Indeed, finished products’ inventories surged by 11.3% to CHF2,959m. On the whole, the group’s sales slightly outperformed the overall Swiss industry in that they decreased by 3% to CHF8,451m whereas Swiss exports declined by 3.6% in 2015. The watches & jewellery segment contributed 96.8% to the group’s sales (flat compared to 2014) at CHF8,177m. The segment posted a 17.3% declining operating profit to CHF1,539m, delivering a decreasing operating margin for the third successive year, at 18.8% (-330bp yoy). Electronic systems delivered CHF292m, i.e. a slight decrease of 1.4%. In addition, it showed a good operating performance with an operating margin of 3.1% (CHF9m) after two successive years of losses. Corporate services reported a net operating loss of CHF97m. In general, the operating profit amounted to CHF1,451m, leading to a modest operating margin of 17.2%. The net profit dropped by 21% to CHF1,119m. Operating investments amounted to CHF755m which were incurred in the geographical expansion and the development of production facilities. Gross cash impressed with a 6.5% surge to CHF1,280m, despite a rise in inventories of 3.5%. The financial structure remains sound with high equity ratio of 84.7%. For the outlook, management is confident for 2016, expecting to deliver 5% growth in local currency, despite the challenging context. Swatch proposes a dividend of CHF7.50, a bearer share and CHF1.50 per registered share.