Swatch sees strong second half, results beat poll

First-half net profit 768m Sfr vs 728m forecast in poll

Zurich: The world’s biggest watchmaker Swatch Group said it was confident about the second half of the year after its first-half net profit shrugged off a crackdown on traditional gift-giving in China to rise more than expected.

Net profit was up 6.1 per cent to 768 million Swiss francs ($821.2 million), ahead of a 728 million estimate in a Reuters poll. Gross sales increased a slightly better-than-expected 8.7 per cent to 4.181 billion francs.

During the first half of the year, watchmakers have been grappling with double-digit percentage declines in Swiss watch exports to Greater China, which absorbed about a quarter of the timepieces that left Switzerland between January and June.

“The outlook for the Group remains very promising, and a strong second half-year is expected,” the maker of Omega, Longines and Swatch watches said in a statement on Tuesday.

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French luxury goods maker Hermes said last week the market for its timepieces in China was suffering from a crackdown on the tradition of gift-giving to party officials and business leaders to facilitate transactions.

Swatch’s operating margin declined to 22.7 per cent from 24.5 per cent a year ago due to integration costs for jewellery maker Harry Winston that Swatch bought for $1 billion this year and higher marketing expenses.

Shares in Swatch have fallen some 12 per cent from May’s all-time high of 602 Swiss francs as Chief Executive Nick Hayek flagged the first half would be weak. Peer Richemont, which also hit a peak in May, has only shed 5 percent since.

They trade at about 15.1 times forward earnings, according to Reuters data, at a discount to Richemont at 16.8 times and LVMH at 16.9 times.

Hayek has said the second half of the year should see an improvement thanks to better sales trends in China, new products, including its new mechanical Swatch watch Sistem51, and easing comparables.

Swatch, which supplies mechanical watch movements to almost the entire industry, suffered a setback earlier this month when Swiss competition authorities decided Swatch could not cut supplies to rivals as much as it would have liked.


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