Swatch Group said it expects to return to growth in 2016 after logging its first annual sales decline in six years, as the watch and jewelry group faced a marked slowdown in Hong Kong — the world’s number-one market for Swiss timepieces — and an overvalued currency.
The Biel, Switzerland-based group reported that net profit fell 21 percent to 1.12 billion Swiss francs, or $1.16 billion, in 2015, prompting it to leave its dividend unchanged for the second consecutive year.
The world’s biggest watchmaker, whose brands range from affordable Swatch watches to high-end Blancpain timepieces, said net sales fell 3 percent to 8.45 billion francs, or $8.79 billion. At constant exchange rates, this represented a 0.9 percent decline, indicating a sharp deterioration in the second half of the year.
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Swatch Group shares closed down 1.4 percent at 334.30 Swiss francs, or $337.30 at current exchange, having dipped as much as 4.6 percent during the day’s trading.
Though below market expectations, the full-year performance still represented a market share gain, since exports of Swiss timepieces fell 3.3 percent in 2015, their first decline since 2009, according to the Federation of the Swiss Watch Industry.
“Watch exports are likely at best to achieve the same value this year as in 2015,” the body stated last week.
Like most other top watch groups, Swatch Group incurs most of its costs in Swiss francs, but generates the bulk of its revenues in other currencies. The Swiss National Bank’s decision a year ago to abandon the cap on the currency’s value against the euro sent the already-strong franc soaring.
Swatch Group reiterated its position that the currency was “massively overvalued,” adding that the strong franc wiped 185 million francs, or $192 million, off group sales last year. All dollar rates are calculated at average exchange rates for the period concerned.
“Group management expects, despite the ongoing challenging environment in various regions, a sustainable development in sales in local currency in 2016, based on worldwide ongoing very good consumption demand for Swiss watches,” it said.
Swatch Group said it had upped patent applications not only in the area of electronic smart and mobile device products, but also for watches and watch movements. Last year’s launches included the Swatch Bellamy, featuring a contactless payment function, and the antimagnetic Omega Co-Axial Globemaster collection.
The Omega brand should benefit from its role as official timekeeper of this year’s Olympic Games in Rio de Janeiro, while Tissot should see “substantially” increased sales in North America and worldwide as a result of becoming the NBA’s first official timekeeper, Swatch Group said.
Group operating profits tumbled 17.2 percent to 1.45 billion francs, or $1.51 billion, reflecting an operating margin of 17.2 percent, down from 20.1 percent the previous year.
The company revealed a share buyback program of up to 1 billion Swiss francs, or $1 billion at current exchange, by 2019.
Swatch Group forecast sales growth of “well over 5 percent” in local currencies in 2016. “January 2016 shows positive growth compared to the previous year, especially in mainland China,” it noted.
The group’s watches and jewelry segment posted a 3 percent decline in net sales in 2015, with tourist flows changing constantly and rapidly as a result of factors including currency fluctuations, infectious diseases such as MERS in South Korea, and political unrest or instability in certain countries.
Despite this, Swatch Group estimated that underlying demand remained healthy.
“Consumption has basically not changed and remains very good. Sales developed very positively in local currencies,” it said, adding that the group’s retail business recorded double-digit growth rates of between 20 and 40 percent in Europe, mainland China and a host of Asian countries.
Analysts were skeptical, with Vontobel lowering its estimates by 5 to 10 percent.
“We consider the 5 percent sales growth outlook to be very optimistic,” it said, adding that it was tabling on a 1 percent rise instead. “The share buyback of 1 billion Swiss francs is a positive step as it leads to 5 percent less shares, but this will be carried out over three years.”