The chief executive of Swatch has provided fresh evidence of a rebound in Swiss watch making, reporting a “spectacular” acceleration in sales, as well as the group’s return to profits growth in the first half of the year.
Swatch factories this month were running at “maximum capacity”, Nick Hayek told the Financial Times, with the “most aggressive growth” in the group’s high-end luxury brands such as Omega and Blancpain.
Swiss watch makers, including Swatch, weathered a severe downturn last year as a result of heavy overstocking in Hong Kong, sluggish global economic growth, and shifts in consumer and tourist spending patterns.
The industry appears, however, to have avoided the threat of smartwatches, led by the Apple watch, creating an existential crisis on the scale posed by Japanese quartz timepieces in the 1970s and 1980s. Then, Mr Hayek’s father Nicolas led a revival in Swiss making by taking over the company that became Swatch Group and developing the plastic Swatch watch.
Signs of the latest recovery have gathered in recent months. The Swiss watch industry federation this week reported that exports in June were 5.3 per cent higher than a year earlier — the second consecutive month showing a significant year-on-year increase.
Mr Hayek expected Swatch Group’s net sales in local currencies to grow at a year-on-year rate of 7 per cent to 9 per cent in the second half of the year.
The Swatch boss has long been among the most optimistic of Swiss watchmakers in predicting better times ahead, however, so analysts treated his projections with caution. “He is an excellent salesman for the Swiss watch industry,” said Jon Cox, analyst at Kepler Cheuvreux in Zurich. “He is talking as much to his staff and external partners as the financial community.”
Swatch’s net sales rose by 1.2 per cent to SFr3.7bn ($3.9bn) in constant currencies in the first six months of 2017 compared with a year earlier. But Mr Hayek said sales of Swatch’s own-brand products — excluding sales of watch components to third parties — had expanded by 3 per cent, and the pace of expansion had increased during the period. “The acceleration between the first and second quarters was spectacular.”
Sales in Switzerland were 21 per cent higher in the second quarter than a year earlier, following 10 per cent growth in the first quarter. Sales in China had accelerated to from 8 per cent 10 per cent.
In contrast to Swiss rival Richemont, Swatch refrained from cutting capacity despite last year’s downturn. Swatch’s global workforce, at 35,000 employees in June, was 2 per cent smaller, at the end of 2016, which Mr Hayek said was within the range of “normal fluctuations”.
Employment in Swatch’s Switzerland operations was unchanged, enabling it to respond quickly to the pick up in demand, Mr Hayek said. “In July, our factories are at maximum capacity because the demand coming from our own brands is so strong . . . At some factories we’re already at the limit.”
Mr Hayek added: “If volumes come back and your machines are running at full capacity, then of course you add to your margins.”
Net income rose 6.8 per cent to SFr281m in the first six months. Swatch’s share price, which has risen more than 40 per cent over the past year, rose almost 2 per cent to SFr371.
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