Bienne, Switzerland–Swatch Group, the world’s biggest watchmaker, reported today that its first half income rose 24% percent and it plans to expand its foothold in the Chinese market by taking a bigger stake in a retail partner there.
Half year net income rose to 575 million Swiss francs (about $717 million). Operating profit rose 21% to 756 million francs, beating analysts average estimates. And first half sales rose 11.4% to 3.362 billion Swiss francs.
Revenue its components and watch movement division rose about 30% to 964 million francs as the company said it has increased production to meet “substantial” delivery backlogs for movements, hands and dials.
Currency Fluctuations Could Cost 1 Billion Swiss Francs
Swatch Group, which makes some 20 watch brands including Omega, Breguet, Tissot and Swatch, is hoping to garner more business in Asia, especially China where demand for luxurygoods is help offsetting the rising Swiss franc.
Last week, Swatch Group bought 500 million shares in Hengdeli Holdings Ltd. for an estimated $257 million, increasing its stake from 9% to 20.4%. Through its subsidiaries, Hengdeli both retails and wholesales international brand watches in China.
Despite its strong performance, Swatch Group executives cautioned that the rising Swiss franc could dramatically cut into its profits. The currency has advanced 31% against the U.S. dollar in the past year alone and Swatch warned that “uncurbed speculation” in the franc would cut into 2011 sales and profit.
In interviews with Reuters and The Wall Street Journal, Nick Hayek, ceo, said the company could miss out on as much as 1 billion francs of potential revenue if current exchange rates continue.
“If nothing changes for the better in the exchange rates, then we will miss for the total year about 900 million to 1 billion francs in turnover. But we are hard fighters and take up the challenge. 7 billion turnover remains our objective, but it’s not easy,” Hayek said.
While Hayek speculated that “2011 will be a record year, we have already lost nearly 400 million francs in the exchange rate. We will fight to get the 7 billion franc 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.”