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Swatch CEO Predicts Swiss Watch Turnaround in 2017

Revenue will rise 7 percent to 10 percent in local currencies, Nick Hayek said in an interview. The CEO’s forecast was off last year, however: he had predicted a 5 percent increase, but sales slumped 11 percent.
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  • Bloomberg

ZURICH, Switzerland — Swatch Group AG chief executive officer Nick Hayek forecast a return to sales growth in 2017, and analysts said this time he may be right as demand for Swiss watches rebounds in mainland China, one of the industry's main markets.

Revenue will rise 7 percent to 10 percent in local currencies, Hayek said in an interview, adding that growth depends heavily on exchange rates. The CEO’s forecast was off last year: he had predicted a 5 percent increase and then sales slumped 11 percent.

“2016 was negative, and people have to consider it as over and done with,” said Patrik Schwendimann, an analyst at Zuercher Kantonalbank. “What’s the deciding factor is whether 2017 trends are indeed turning better, and while Mr. Hayek is usually optimistic at the beginning of the year, there are positive signs that give his optimism some ground.”

High fixed costs and a drop in demand for timepieces led to the lowest operating margin in two decades last year at the owner of the Omega and Tissot brands. Richemont, the maker of Cartier and Piaget timepieces, said in January that watch sales rebounded in its own store network in the final months of 2016 — a year marked by job cuts, terrorist attacks in Europe that deterred wealthy tourists and slumping demand in China.

Sales increased more than 50 percent in China last month, aided by the earlier timing of Chinese New Year, Hayek said. That follows single-digit sales growth in November and an increase of more than 20 percent in December.

Shares of Swatch were down 1.1 percent as of 11:43 a.m. in Zurich, erasing part of an earlier decline of 4.8 percent. Investors are less pessimistic, with about a sixth of Swatch’s bearer shares shorted, down from about 30 percent at the end of September, according to Markit Ltd. data.

Watchmakers at the Geneva watch show last month pointed to President Donald Trump possibly spurring demand for timepieces by cutting taxes on wealthy Americans.

“I hope the US finds its way back to be industrialised again and to move their middle class forward,” Hayek said. “That would be good for the Swiss watch industry.”

Swatch’s employee total dropped by 600 to 35,700 at the end of December, the first annual decline since 2009. Hayek said Swatch avoided formal job cuts as it restricted hiring and some employees weren’t replaced after leaving or retiring. Richemont eliminated 200 jobs at watchmakers in Switzerland last year.

Other highlights included:

  • Dividend cut 10 percent to 6.75 francs a bearer share and 1.35 francs per registered share
  • Gross margin of watches & jewellery unit, excluding production of components improved in second half from first half: Hayek
  • Swatch raised prices of ETA movements by 7 percent and Nivarox assortments by 14.8 percent as of January 1
  • Belenos battery unit aims to deliver batteries for cars in 2018 or 2019 in "best-case scenario": Hayek

By Corinne Gretler; editors: Matthew Boyle, Thomas Mulier, Eric Pfanner.

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