UPDATE: Swatch Posts Strong Earnings Despite Swiss Franc Concerns
28 July 2011 - 10:03PM
Dow Jones News
Swatch Group AG (UHR.VX) Thursday warned about the dire effects
of the soaring Swiss franc despite reporting record half year
profit and sales figures.
The world's biggest watchmaker, whose brands range from the
luxury Breguet to the eponymous plastic Swatches, said sales rose
24.2% to CHF3.36 billion in the six months to the end of June.
Net profit rose 24.5% to CHF579 million.
The Biel-based company said it expected continued strong growth
in all segments and regions, but this was being constrained by the
uncurbed rise of the Swiss franc.
The currency has risen to record levels this year as investors
rushed to its safe haven status amid the European debt crisis. In
the first six months of the year the currency has risen 2.6%
against the euro and 10.5% against the dollar.
The "continuing over-valuation" of the Swiss franc knocked
CHF387 million off first half sales, Swatch said. This was worse
than the whole of 2010, when negative currency effects reduced
sales by CHF164 million.
"The over-valued Swiss franc reduces margins at the Group's
foreign distribution companies, while the high volatility makes
exchange-rate related price adjustments difficult," Swatch said in
a statement, adding that "the strength and volatility of the Swiss
franc have to be considered as extremely problematic for
Switzerland."
Expansion of its distribution and retail network, as well as the
production business, contributed to the sales and profit growth in
the first half, Swatch said.
The second half of the year looks "promising," Swatch said, with
sales trends in July continuing the trend from the first six
months.
The company said it is investing to reduce production
bottlenecks and plans to increase capacity further to maintain
growth, but warned that growth "will, however, be hampered by
uncurbed speculation in the Swiss franc."
Analysts were impressed by the figures. The results were
stunning given the strength of the Swiss franc, which remains the
most likely challenge going forward, said Bank Vontobel in
Zurich.
"Unlike other Swiss companies, the strong franc didn't prevent
it reporting record results, and the outlook remains positive,"
said analyst Rene Weber.
At 1115 GMT, Swatch shares were up 06% at CHF426.8 on the SMI
index which was down 0.9%. The stock has risen 2.4% since the start
of the year.
-By John Revill, Dow Jones Newswires; +41 43 443 8042 (Neil
MacLucas in Zurich contributed to this report);
john.revill@dowjones.com
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