PARIS — Swatch Group said net profits jumped 26 percent in 2012, beating market expectations, and it expects another year of healthy growth after a positive start to 2013.
The world’s largest watchmaker — parent of brands including Omega, Breguet, Blancpain and Swatch — posted net income of 1.61 billion Swiss francs, or $1.72 billion, in 2012 versus 1.28 billion Swiss francs, or $1.44 billion, the previous year. All dollar rates are calculated at average exchange rates for the period concerned.
“The 2013 financial year started well in January with continued healthy growth,” Swatch Group stated.
“The signals from the markets around the world clearly indicate continued healthy growth potential for the Swiss watch industry and the Swatch Group,” it said. “Against this backdrop, there is a realistic prospect of long-term growth in the Swiss watch industry of 5 to 10 percent per year.”
Swiss watch exports rose 12.6 percent between January and November 2012, according to the Federation of the Swiss Watch Industry, which is due to publish full-year results on Tuesday. Though demand has softened in key Asian markets, Chinese tourists are expected to continue underpinning European sales this year.
As previously reported, gross sales at Swatch Group rose 14 percent last year, breaching the barrier of 8 billion Swiss francs, or $8.5 billion, for the first time.
In its full results statement, the group said its operating profit margin rose by 150 basis points to 25.4 percent in 2012. This was sharply higher than forecast by Swiss private bank Vontobel, which earlier said it expected the margin to increase by 30 basis points to 24.2 percent.
The Swatch Group results come on the heels of disappointing data from rival Compagnie Financière Richemont. The parent of brands including Cartier and IWC reported last month that revenues in its fiscal third quarter rose 9.3 percent to 2.86 billion euros, or $3.72 billion, as sales in the Asia-Pacific region flattened out.
Thomas Chauvet, luxury analyst at Citi, maintained his “neutral” rating on Swatch Group shares.
In a research note, he pointed out that the company’s cash pile has been steadily decreasing due to higher inventories, the acquisition of small movements and components suppliers, purchases of raw materials and a personal loan to the chairman of Swatch group’s largest Asian customer, Hengdeli Holdings.
“The acquisition of Harry Winston jewelry brand for approximately $1 billion in January 2013 will put further pressure on cash flow this year,” Chauvet said.
“While management emphasized that this is a good use of ‘low-yielding cash,’ we are not fully convinced by the rationale of the Harry Winston deal, which will dilute margins/returns and require additional investments in sourcing, manufacturing, distribution and working capital,” he added.