Swatch profit plunges despite higher sales
AFP/The Local · 5 Feb 2015, 11:48
Published: 05 Feb 2015 11:48 GMT+01:00
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- Luxury watch brand to invest heavily in Geneva (14 Jan 15)
- Strong franc dents Swatch first-half profits (22 Jul 14)
- Switzerland's Swatch to open stores in India (20 Jul 14)
Last year, the Swiss watchmaker's net income plummeted to 1.4 billion francs ($1.5 billion), its weakest result in five years.
The company's operating profit also slumped 24 percent to 1.7 billion francs.
Following the news, Swatch's share price dropped 4.59 percent to 83.85 francs a piece in mid-morning trading, as the Swiss stock exchange's main SMI index slipped 0.79 percent.
The news was not all bad though.
Despite currency pressures, Swatch's sales swelled 4.6 percent to a record 9.2 billion Swiss francs ($9.95 billion).
Analysts polled by the AWP news wire had expected the Biel-based company to post a higher net profit, of 1.5 billion francs, but Swatch's sales figure narrowly beat expectations of 9.1 billion francs.
Swatch, best known for its brightly coloured plastic-cased watches, said the profit drop was linked to a 70-percent hike in investments last year to a total of 1.2 billion francs.
The company said it had spent much on expanding the brand of US jeweller and watchmaker Harry Winston, which it snapped up in 2013, and on launching new series of watches under both the Omega and the Swatch brands.
It also bought a high-end building in Zurich, invested significant amounts in opening new mono brand stores, and hiked investments in facilities, production and retail stores.
With most of its investments made in Switzerland, Swatch acknowledged that a recent shock move by the Swiss central bank to allow the franc to float, was causing serious headaches.
The Swiss National Bank suddenly announced in mid-January that it after more than three years was lifting an enforced maximum exchange rate of 1.20 francs to the euro, allowing the Swiss currency to soar by as much as 30 percent.
Switzerland's watch industry is extremely vulnerable to currency fluctuations with most of its expenses paid in francs but most of its revenues generated abroad.
Swatch, which saw its share price plunge more than 16 percent on the day of the central bank announcement, said Wednesday the bank's move already begun taking its toll on the 2015 results, although it stressed its flexibility and ability to withstand currency pressures.
"With its 20 brands, its own production and its worldwide distribution network, the group is in a very strong position," the company said, pointing out that Harry Winston booked its costs in the United States and Rivoli in the Middle East in local currencies, which would "absorb part of the negative effect of the overvalued Swiss franc."
Swatch also confirmed that some of its brands would raise prices by as much as seven percent in some markets to "compensate for the very unfavourable currency situation."
Despite the currency turbulence, the company said its board would propose maintaining a high dividend of 7.50 francs per bearer share and 1.50 francs per registered share.