INTERVIEW: Franc Could Cost Swatch CHF1 Billion In Sales - CEO
29 July 2011 - 1:48AM
Dow Jones News
Swatch Group AG (UHR.VX) expects mounting problems with the
surging value of the Swiss franc this year, saying the currency
could cost it up to CHF1 billion in sales this year.
The "continuing over-valuation" of the Swiss franc knocked
CHF387 million from its record first half sales, Swatch said, worse
than the CHF164 million lost in translation during the whole of
2010.
"I think 2011 will be a record year, but the franc is a real
concern. We have already lost nearly CHF400 million in the exchange
rate," Chief Executive Nick Hayek told Dow Jones Newswires.
"We will fight to get the CHF7 billion sales guidance, and it
will definitely be a record year in local currencies. With the
franc we are going to have to see what happens."
Swatch, which makes watches under brands such as Omega, Tissot
and Longines, Thursday reported record half year sales and
profit.
"On performance, sell out, there is no doubt this year will be a
record," Hayek said.
"But if the situation stays like it is now, then sales could be
CHF800 million, CHF900 million or a billion less because of
exchange rates."
Hayek called on the Swiss National Bank to intervene to prevent
the rise of the currency, which has surged to record levels against
the euro and the dollar.
The bank was criticized for its intervention last year that
built up large reserves of euros and a book loss of CHF19.2
billion.
The problem with this intervention was that the SNB did not
publicly announce its objectives, Hayek said.
"You must tell speculators to be careful, if the currency goes
over this line, you will have a hard time," he said.
A similar intervention to prevent the rise of the franc against
the Deutsche Mark in the 1980s was successful because former SNB
chairman Fritz Leutwiler declared a clear exchange rate goal and
intervened, Hayek said.
Swatch meanwhile is continuing to improve efficiencies and look
at pricing to counter the impact of the currency, although the
latter could only help slightly Hayek said.
"We have a tradition of finding solutions, but many other
companies have problems. The currency is affecting the whole of
industry."
Prices have already increased slightly earlier this year,
although these benefits have already been overtaken by the currency
volatility.
Further increases will be examined on a country by country
basis, Hayek said, although Swatch will be careful not to lose
market share.
"We will not solve the problem with prices. We had some small
adaptations in prices in May, but if you look at currency
exchanges, the situation is now totally different.
Changing reporting currency was only "window dressing" he said,
and there are no plans to move any production out of
Switzerland.
"Legally we could produce more of our products outside of
Switzerland, but we don't do that. We have good trained people and
we will stay.
"It would be cheating to go somewhere else."
Looking ahead, he said sales in July had been "very good."
"The situation is very good everywhere. We are growing really
well everywhere. The problem is the franc."
-By John Revill, Dow Jones Newswires; +41 43 443 8042 ;
john.revill@dowjones.com
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