The Swatch Group Emerges from the Financial Crisis 2009 in Excellent Shape

WEEHAWKEN, N.J., Jan. 20 /PRNewswire/ --

• Third-best year in the Swatch Group history with Group gross sales of CHF 5 421 million, a decrease of -6.3% on a comparable basis (at constant exchange rates and excluding 2008 divestments of Sokymat and Michel).
• Significant rebound in sales in the second half of 2009, with a phenomenal record month of December, which also was the best month in 2009.
• Watch segment sales with a decrease at constant rates of -5.5% largely outperformed Swiss Watch Federation export sales 2009, gaining market shares for the Group in practically all price segments and markets.
• Production segment with sales decrease mainly due to order cancellations and a change in product mix.
• Electronic Systems segment sales -14.5% lower than last year (excluding 2008 divestments of Sokymat and Michel), but steadily improving in the fourth quarter 2009 with increasing order inflow.
• Improved operating profit margin and net income compared to the first half year expected; Group very confident of further increases in sales and margins in 2010.
• Omega's mission as official timekeeper at the Winter Olympics 2010 in Vancouver and the Swatch Art Peace Hotel opening mid 2010 in Shanghai are two of the highlights to come, as well as significant developments of new products in most of the brands and new production systems in Switzerland.

Group Overview

After the known market decline in late 2008 and early 2009, with a worldwide recession and a sharp drop in consumer spending, most markets recovered from the financially stressed environment in the second half of the year. The last months of 2009 showed a very positive development, with clear signs of market normalization and increased consumer confidence. To some degree, the economic crisis 2009 has separated the wheat from the chaff. This applies especially to the watch industry, where values such as brand awareness, tradition, history and high-quality products count more than ever. Consumers are looking for value and quality. The Swatch Group, with its large range of products in all price segments, increased its market share in most markets and regions.

In this challenging year, the Group achieved gross sales of CHF 5 421 million, a decrease of only -6.3% on a comparable basis (at constant exchange rates and excluding last year's divestments of Sokymat and Michel). This still represents the third-best result in the Swatch Group history. While the first half year saw a significant decline, sales picked up in the second half and just exceeded – in local currencies – sales of the second half of 2008. Strong Christmas sales clearly beat expectations and December turned out to be the best-ever month of December in terms of sales.

The fourth quarter 2009 - expressed in Euro terms - performed at +7.1% at actual rates and +11.1% at constant rates.

Foreign currencies negatively impacted sales by CHF 105 million or -1.8%, mainly in the second half of 2009. Especially the Euro, the British Pound and the Russian Ruble negatively impacted sales compared to previous year rates. The US Dollar had practically no impact, while the Chinese Yuan and the Japanese Yen influenced sales positively.

Increasing watch demand in several markets compensated decreases in other markets and helped the segment Watches & Jewelry to achieve a remarkable result in 2009. The Production and Electronic Systems segments, on the other hand, were confronted with weaker demand and realized lower sales than in the previous year.

In 2009, the segment Watches & Jewelry recorded gross sales of CHF 4 429 million, a decrease of only -5.5% at constant rates compared to the record year 2008 (-7.7% in CHF). Compared to the 2007 sales, which were not impacted by the financial crisis, and at constant 2007 rates, current year sales even increased by +1.3%. This performance is substantially better than the export figures published by the Swiss Watch Federation, which means that the Group has once again increased its market shares in several price segments. Sales in the second half of 2009 were almost 5% higher – at constant exchange rates - than in the second half of 2008. This encouraging trend led to a phenomenal record month of December with strong Christmas sales.

In the second half of 2009, sales performance strongly improved in many regions, in some cases even exceeding the prior year level. Countries such as Japan, the US and Spain continued to suffer from the difficult economic conditions. However, the Group's presence in all price segments helped to overcome the weaker demand for top luxury products. The middle price range performed very well. The Group's strong brands – starting with Omega – played a leading role in many markets.

Retail activities were further expanded in selected locations, seizing opportunities and available space in the different markets. This strategy has begun to pay off with the current recovery of the economic environment, and it will decisively support the Group's long-term growth. Third-party agents and retailers are starting to normalize their reduced stock levels, which will increase the demand at wholesale level in the future.

In the Production segment, gross sales decreased in 2009 by -17.7% to CHF 1 489 million. This slowdown manifested itself in the second half of 2009. It is mainly due to the time lag between production and final watch sales, with order cancellations leading to reduced demand for watch movements and components and, in many instances, to a lower capacity utilization. The main reason for the drop in intragroup sales was a change of product mix. In particular, diamonds from Dress Your Body were less in demand than in 2008. Another factor was the shorter processing time of quartz movements for Swatch watches and a simultaneous stock reduction at Swatch brand level. Furthermore, order entries from third parties in 2009 for 2010 for mechanical movements decreased sharply. This trend will soon change in light of the improving market situation.

Because of the Group's clear commitment to fully preserve all jobs for its employees worldwide, despite the difficult economic situation, research, development and prototyping activities could be substantially increased and quicker positive results achieved. In addition, capacities were purposely kept at a certain level in all important production facilities, increasing stock but not sales. Special training programs were also launched. In only a very few cases, reduced working hours were implemented in the second half of 2009; in the meantime, practically all have already been stopped.

The current order entries picked up in December 2009, which is an encouraging sign for the Production segment mid to long term.

The market environment for the Electronic Systems segment remained very challenging in 2009. On a comparable basis (at constant exchange rates and excluding previous year divestments of Group companies Sokymat and Michel), segment gross sales decreased by only -14.5% to CHF 394 million.

In some cases, due to very low inventory levels of some of the Group's suppliers, not all orders could be delivered to our customers. However, the improving sales trend in the last months of 2009 clearly shows that markets are recovering. Suppliers are regaining confidence and normalizing their stock levels. As a consequence, segment sales and profitability significantly improved in the second half of 2009.

The announced sale of Microcomponents' step motor activities will further reduce the exposure to the automotive industry.

Expected earnings 2009 and Outlook 2010

The Group expects that the operating profit margin and net income for the full year 2009 will improve compared to the first half of 2009. This improvement will be visible predominantly in the Group's core business, the segment Watches & Jewelry.

With the prospect of a continuous recovery of the economic environment and the new developments realized in the last months, the Group is very confident that further solid organic sales growth will be achieved in the year 2010. A promising trend can be identified, based on the excellent sell-through figures in January 2010 as well as the order entries for the months to come. The positive outlook is also backed by the Group's positioning in all market segments and its broad geographical presence. Consumer spending is expected to see a steady increase in most countries, with a growing middle class mainly in the emerging markets supporting this trend.

A positive impact on sales is also expected from Omega's mission as official timekeeper at the Winter Olympics 2010 in Vancouver, starting on 12 February 2010. Omega has been appointed the official timekeeper of the Olympic Games until 2020. Furthermore the opening of the Swatch Art Peace Hotel mid 2010 during the World Exhibition in the fantastic place of Shanghai will represent another milestone for the Group. The increased positive results of the Group's research and development activities will also contribute to further sales growth.

SOURCE Swatch Group