More than 9 billion for the Swatch Group

The Swatch Group, with its twenty brands, generated gross sales of 9,219 million Swiss francs in 2014, growing a further 4.6%, and net sales increased 3.0% to 8,709 million, despite the ongoing and extremely difficult currency situation which impacted gross sales with a negative exchange rate effect of 138 million over the entire year. In addition, the fire at ETA already negatively affected sales in the first half year of 2014 by approximately 200 million.

In Watches & Jewelry, without production, growth in gross sales of 5.6% and in net sales of 3.9% was generated, despite an ongoing long-term defensive price adjustment policy. In comparison, exports of wristwatches for the entire Swiss watch industry to the end of December 2014 increased by 1.7%, which in turn indicates a clear gain again in market share by the Swatch Group. This underscores the long-term strategy followed by the Group, which is characterized by a defensive price adjustment policy and a high level of investment, in contrast to short-term profit thinking. Therefore, all brands deliberately undertook more marketing investments, not only in the first half 2014 during the Olympic Winter Games in Sochi, but also in the second half of the year, by investing in the growth markets of the USA, Japan and Mainland China. In particular, Omega signed a renewal contract until 2022 for the US PGA Golf tour, and Longines massively increased its presence in equestrianism, mainly in Japan and the USA.

In the year under review, production ramped up in the new plants in Boncourt, Grenchen and Villeret. Also, the new Universo plant in La Chaux-de-Fonds started production. In connection with the fire at ETA, the production flow was newly defined and reorganized in order to rule out, as far as possible, any such interruption in future, particularly in the electroplating department. As expected, there were far fewer adverse effects resulting from the fire in the production at ETA in the second half of the year than there were in the first half. As a result, production could again be stabilized as of November, however, lost production and additional costs due to the fire could not be recovered.

The Electronic Systems segment generated gross sales growth of 9.0% in the second half of 2014, adjusted for the disposal of Oscilloquartz SA, which is an extremely positive result in view of strong price pressure and unfavorable exchange rates. This was achieved through significant innovations in batteries and integrated circuits. The latter also recorded higher sales volumes, driven by electronic consumer goods such as fitness bands, for example, which brought sales in this segment to 299 million. The companies of the Swatch Group belong to the most innovative players worldwide in the smart objects sector, and the list of well-known smart and mobile device producers which these Swatch Group companies supply with components is long.

In 2014, the Group’s operating profit reached 1,752 million Swiss francs, reflecting an operating margin of 20.1%, which, after consideration of financial and non-operating elements and taxes, brought the net income to 1,416 million. This corresponds to a 16.3% net return on sales. As a result, equity increased to 10.7 billion by the end of 2014, an extremely solid capitalization, with an equity ratio of 83.7%.

Operating cash flow of 1,848 million was very high due to the very good incoming payments over the course of the entire year, although there was still consistent investment in inventories. The latter went mainly to expansion of the Harry Winston brand, the launch of the new Omega Master Co-Axial with anti-magnetic movement, the preparation for the worldwide launch of the new AluSwatch XLite and the opening of new monobrand stores.

In addition, approximately 10% more was invested in facilities, production and retail stores than in the previous year. Including the acquisition of the Peterhof commercial building on the Bahnhofstrasse in Zurich made at the end of the year, total investments reached 1,203 million. This represents approximately 70% more than the previous year, of which 867 million in Switzerland.

Group wide, over 2,100 new jobs were created. Switzerland alone accounted for 770 new jobs, mainly in the production area and to a lesser extent in the retail business. This underscores the Group’s commitment to its manufacturing base Switzerland as well as the further strengthening of Swiss made. In total, Swatch Group employed more than 35,500 employees at the end of December 2014.

The 2014 result and the current outlook for 2015 have prompted the Board of Directors of the Swatch Group to propose an unchanged high dividend of 7.50 Swiss francs per bearer share and 1.50 francs per registered share at the Annual General Meeting on 28 May 2015.

Outlook for 2015
After a strong December 2014 in Swiss francs, 2015 started very auspiciously with a strong January, of course computed in local currency. With the decision of the Swiss National Bank on 15 January 2015 to abandon the Euro minimum exchange rate after three years and to introduce higher negative interest on current accounts, the negative exchange rate impact for 2015 was already anticipated; within a day the Swiss franc rose to parity with or even slightly higher than the Euro.

With its twenty brands, its own production and its worldwide distribution network, the Group is in a very strong position. Marketing investments and selling expenses in foreign currencies, or companies such as Harry Winston in the USA or Rivoli in the Middle East, whose costs are also recorded in local currency, absorb part of the negative effect of the overvalued Swiss franc. In addition, several Group brands are reacting with price adjustments of between 5% and 7% in select markets, which will also compensate for the very unfavorable currency situation.

The number of Swatch Group patent applications reached a new record again in 2014; this will be reflected in the numerous innovative product launches in all segments in 2015.

February 19, 2015