Swatch Group Hits Record 50% Plus First Half Profit

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Zurich–Swatch Group, the world’s largest watch maker, posted today a more than 50% jump in first half net profit, driven by strong demand in Asia, Europe and the United States.

Net profit leapt 54.5% to 465 million Swiss francs ($435.4 million) on record gross sales of 3.03 billion Swiss francs. Market analysts say the company, which produced watches ranging from plastic Swatch watches to high-end brands such as Breguet, Blancpain and Omega, has faired better than some of its competitors due to its penetration in faster growing markets such as China, which now account for 25 to 30% of the company’s sales.

While the company may feel the pinch of volatile exchange rates and increasing gold prices in its second half, Nick Hayek, ceo, said: “We don’t see what could keep us from achieving record sales and profit in 2010.”

“We have seen growth in all our markets. China continues to grow, of course, but Russia also grew strongly and steadily over the past years and the Middle East is back to a strong performance after a period of weakness in 2009,” Hayek said

U.S. Demand to Pick Up in Second Half

Sales in the United States and Europe, except for Greece, also increased in the first half. “The U.S. will grow also in the second half, they have to catch up. I also expect strong growth in Western Europe,” Hayek added.

Swatch Group benefited from its diversified brand portfolio, widespread geographic exposure and a broad distribution platform wrote, Citi analyst Thomas Chauvet said in a note to clients.

“Figures were clearly ahead of expectations, watches in particular were very strong with organic growth of 335. The group is ahead of its peers and the Swiss watch export figures,” Vontobel analyst Rene Weber said.

Swiss watch exports rose by 19.7% in the first six months of this year, leading some to speculate that Swatch, which also supplies mechanical movements and other parts to the watch industry, may not be able to keep up with demand.

Hayek, however, tried to dispel those fears noting that Swatch Group didn’t reduce its staff, including expert watchmakers already in short supply, when the market down turned in 2009.

“One of our key advantages was that during the downturn of 2009 we didn’t cut our staffing. This is helping us now since we don’t need to hire and educate new staff,” Hayek said.

Should any bottlenecks occur in the second half—when watch sales typically are greatest—it actually may be a sign of market health. “It basically means that demand is very strong and that some clients may have to wait longer for a watch,” said Zuercher Kantonalbank analyst Patrik Schwendimann.

“In the past, Swatch has often experienced bottlenecks, especially during the last upswing. When the demand overhang remains, then Swatch needs only to invest in new facilities, which is what they have always done in the past with success,” Schwendimann said.